Today we're going to continue a conversation we started last Thursday regarding a very accurate and potentially very profitable trading pattern that only few investors are familiar with.
I've gotten lots of great feedback about that article and, as always, thank you!
Frankly, there isn't a single thing I'd rather be doing than helping you make money, build wealth, and live the life of your dreams. I love what I do, and I love the fact that the Total Wealth family has grown from just a few subscribers to the investing giant it is today with a seven-figure readership!
Speaking of which, I've received a number of questions from savvy readers asking if the descending triangle pattern we discussed last week could be played to the upside.
It only takes one great indicator to make a fortune and two or three trades to make you a legend.
I'd like to see you do both.
As I explained, the descending triangle is used best when a downward trend is both established and expected.
Right now, that's clearly the case.
You can see that when I superimpose the descending triangle pattern on the SPDR S&P 500 ETF Trust (NYSE Arca: SPY), which mirrors the S&P 500 Index.
If you recall, there are two things that set this pattern apart from the more conventional Bull and Bear Flags – here they are again if you missed 'em!
But with the descending triangle:
1) Support and resistance levels are converging instead of parallel.
2) Trading is erratic, with sharp up days typically followed by sharp down days instead of constant.
Contrary to what many investors believe, "why" really doesn't matter. But, just in case you're interested in an explanation, traders around the world – who I talk to every day on your behalf – are concerned, like I am, about the possibility of a trade war between China and the United States, not to mention worries over the increasingly complicated relationship between Russia and the United States.
That means prices are more likely to drift downward, which is where you want to focus, because "bids" – meaning buyers – are hard to come by.
That's the "tradable event" here.
Buying both SPY June and December $257 put options along the "fake-out points" I circled in yellow is the easiest way to play that expectation as well as being the least risky. You know to the penny what you will pay to buy 'em and your risk is limited to what you pony up.
Now Let's Juice That Up for Even More Profit Potential
One of the things that makes a trade like this so profitable is that the rapid changes in price that typically form this pattern often give way to equally rapid changes in volatility. That means you can use both price and volatility to your advantage… especially if there's a reversal to higher prices.
By the way, I'm really proud of you – the fact that I received so many questions about how to play this pattern in the event of a reversal tells me you're engaged, you're thinking outside the box, and most importantly, you're "in to win."
To that end, I can think of three additional ways to play the same descending triangle pattern to the upside:
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.