The set-up: Gold, as represented by the SPDR Gold Shares (GLD), has had solid resistance for months now, just a straight line that you can easily see on the charts, and Monday it had a flat-top breakout, finally breaking through the ceiling after a long-term consolidation period.

The chart: 

When I see this kind of significant breakout, the only indicator I look for to confirm it is volume expansion, and – as the chart shows – that is exactly what we saw on Monday.

The upside: When I see a breakout in a security that has been cycling this hard back and forth between consistent resistance and support levels, setting the next target is easy. I take the depth of the pattern, and I add it to the top of the breakout.

As noted in the chart, the depth was $7, the breakout was at $123, so the new target on the GLD is $130. It’s not a foolproof system, but it happens more often than not.

The downside:  The risk here is down to the support line, which is about $121.75. While this breakout looks good, these things don’t always go straight up to the target and it may test support before going higher again. I’d set a stop if there was a hard close below support; it can go beneath support during the day’s trading, but if it gets stuck there at the end of the day, close it out.

The play: With a target of $130 and a downside of $121.75, the risk-reward – the r multiple – looks great here. As a trader, if we get into trades with a good r multiple, we can be right less more than we are wrong and still make money.

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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