The set-up: This is a simple story shown on the chart, where the SPDR Dow Jones Industrial Average ETF (DIA) has been in what I call a tight coil, where resistance and support are converging. I call it a coil because,it is like a coiled spring, ready to let loose one way or the other.

The chart: 

Whatever you call it, this has been a slow grind to the upside, and we finally saw a break through $220 yesterday. That means to me that the path of least resistance is going to be up.

That is helped out by the Relative Strength Index; the RSI is at the edge of overbought, but it’s still neutral so it’s not going to stop this move.

The play: Take the depth of the pattern – about $5 – and add it to the breakthrough point. That gives you from $220 to $225. I’d set my stops at $217.50, and that gives me a 5-point reward with a risk of 2.5 points, a good enough r multiple to make this trade.

If you want to go a little bit bigger, you could use a leveraged ETF like ProShares UltraDow 30 (DDM) or the ProShares UltraPro Dow 30 (UDOW) which are 2X and 3X ETF plays on the Dow.

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  Jason Bond runs JasonBondTraining.com and is a swing trader of small-cap stocks.

Author: Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of RagingBull.com and the RagingBull.com Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

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