GDS Holdings Limited (GDS), a leading data center provider in China, is set up for a massive rally. The stock has shed more than 30% of its value since July of last year, but a bullish chart pattern signals that huge gains are about to come.

Shares of GDS Holdings are trading in a broad consolidation pattern that sees a strong support level hold against a falling resistance level – known as a descending triangle pattern.

Descending triangle formation on the chart of GDS Holdings Limited (GDS)
Optuma

With the key levels of support and resistance, the lines in the sand are drawn. A break above or below these key levels would tell us that a major move in either direction is about to take place.

Triangle patterns give us clear expectations after a breakout occurs. The move is typically equal to the height of the pattern. In this case, the height is $24 per share.

A breakout to the upside sets up a possible rally of 80% or greater, in quick fashion. However, a breakout on the downside could send GDS stock quickly below $7 per share. A $24 decline would wipe out the stock, but a plunge back to $7 per share would be a drop of greater than 60%.

With the stock trading right at the top of the range and most triangle patterns being continuation patterns, I expect the breakout to occur to the upside.

Height of descending triangle formation on the chart of GDS Holdings Limited (GDS)
Optuma

Regardless of the direction of the breakout, there is a 100% chance that one occurs in the coming months. And that will be key in determining how to trade the stock going forward.

The Bottom Line

In sum, if you are looking at GDS Holdings ahead of the breakout, it is advisable play the upside. Triangle patterns are mostly continuation patterns, and this stock has been climbing since 2017. The upward breakout signals for a potential 80% gain in the coming months.