If you want to make a lot of money as a trader – and I mean a lot of money – you need an edge.

Every good trader knows exactly where they have an advantage. That advantage is what lets them pull gains out of the market over and over again.

One advantage many traders would kill to have is the ability to read a price chart.

That’s a skill we’ve been working on developing with you here at Market Minute.

On January 6, we broke down a recent trading call in XHB, a homebuilders ETF. So far, the call has worked out really well.

If you took the trade when I first recommended it to you on December 6, you would have been up over 13% on the stock before the end of the year. Not too bad…

The Trend Is Your Friend

In the breakdown of that trade, I let you know that when a stock is in an uptrend, it’s best to look for trend continuation patterns.

Trading really is that simple.

Once we have confirmation an uptrend is over, then we can look to play the downside. But until then, you want to stay on the same side as the larger trend.

In the case of XHB, it’s been clear the stock has been in an uptrend for quite some time.

That’s why I said on January 6 that if we see another trend continuation pattern, we’ll break it down together once again.

Another Pattern

And sure enough, XHB is currently tracing out another pattern.

This time the pattern is a high base. They’re one of my favorite trend continuation patterns.

They’re very simple to understand, easy to spot, and straightforward to trade.

A high base appears when a market trades sideways. This sideways trading pattern reflects a balance in power between buyers and sellers.

But a market can’t trade sideways forever. In the case of a high base pattern, you want to see prices trading sideways in a fairly tight range.

That’s when you can draw the outline of the pattern using two trendlines. You can check this out on the chart below:

Take notice of how the trendlines visualize the tightly ranging price action.

Eventually prices will have to break out. Think of it like water boiling inside a kettle. After enough time has passed, the water will boil, and all that steam has to escape. It’s the same thing with the high base pattern.

As you can see, prices are still trading within the confines of the high base. Look for XHB to now bounce off the lower trendline. Afterward, we could see a strong breakout of the top of the pattern.

That would be the green light to take another trade in anticipation of another strong rally higher.

The original target in XHB called for a move to about $108. We’ll continue tracking XHB as it hopefully reaches the target over the coming weeks.

If anything changes with the price action of the stock, we’ll break that down together as well.

Happy trading,

Imre Gams
Analyst, Market Minute