Tips for Trading Rectangles Short

Rectangles have been very popular with traders over the years trading the chart pattern when it breaks out in either direction. A rectangle is defined by two lines, one on the upper boundary of the price movement and one on the lower boundary, both of which are horizontal. The lines are parallel. These can be referred to as consolidations or channels, or the well known Darvas Box, used by Nicolas Darvas to make $2 million in the markets.

Rectangles, Not Usually Traded Short

Rectangles are definitely not one of the most predictable patterns that are available to trade short. With just 46% of the patterns breaking down rectangles also don’t deliver good returns when they do. The average gain is negative, -0.03% in 10 days with less than half of the breakouts (42%) being profitable. These results aren’t great, but selecting the right conditions can make trading rectangles better.

Specific Setups to Improve Profitability

A break to the downside requires certain market conditions to be effective. Avoid falling markets, so look for markets that are consolidating or rising. By using filters that require the stock to be in consolidation and the sector to be in a trend, either up or down, you can improve the results.

A breakout from a rectangle is best if the pattern is not formed by a large candle touching both boundaries. This does not happen very often. The best trades occur if the stock has lower highs and does not have a close equal to the previous day, before the breakout occurs.

Ensure that the volume is supportive of the breakout, i.e. volume as the stock falls is greater than volume as the stock rises.

Rectangles Profitable on the Short Side as Well

When trading rectangles short these filters are very important to get good results, making this an extremely difficult pattern to trade short. With these filters in place, an average return per trade of 1.07% in 13 days and a hit rate of 63%. There are better patterns to trade short.

Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 – 2008.

Jeff Cartridge is a private trader and created the website LearnCFDs.com A Simple Timeless Method for Huge Gains

Rectangles – Long Trading Strategy with CFDs

The rectangle is sometimes referred to as a channel or a consolidation. It is a very well known and easily recognized chart pattern that has been used by many successful traders over the years, including Nicolas Darvas who made over $2 million in the stock market using a variation of the rectangle he called a Darvas box. A rectangle is formed when the price action is contained within two lines. Both the top line and bottom line are close to horizontal and the two lines are parallel.

Rectangles, Breakout Unclear

Rectangle breakouts show a slight bias to the upside with patterns breaking up 54% of the time. This upward bias is likely due to the overall bullish bias of the market as the symmetrical nature of the pattern does not clearly indicate a breakout direction. The breakout of rectangles can deliver strong returns with 56% of the patterns being profitable. The average return for the long trades is 1.15% in 12 days.

Refine Your Entries

A break to the upside works better in a rising or consolidating market. By using filters that require the market, sector and stock to be in a consolidation or an up trend you can improve the results.

Rectangles are not dependent on where in the pattern the breakout occurs. The length of a rectangle is important with patterns that are longer than 10 days and less then 35 days producing better results.

Volume is important with rectangles ensure that the volume is supportive of the breakout with the volume as the share rises more than volume as the share falls. Avoid patterns that have lower highs prior to the breakout or the last turning point is formed by a single outside candle.

Trading Rectangles Can Be Very Profitable

You can improve your trading results by using a series of simple filters that have been outlined here. This select group of rectangles delivers an average profit of 1.89% in 13 days and is profitable on a very high 71% of the trades. Overall this makes rectangles attractive to trade.

Note: Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 – 2008.

CFD Trading Strategy – Symmetrical Triangles Downside Breakout

The symmetrical triangle can be traded on the short side entering the trade as the stock breaks out of the pattern to the downside. The pattern forms when the two boundary lines that contain the price movement converge to a point. The bottom line slopes up toward the top line which slopes down. Both lines have nearly the same slope as each other which is why the pattern is called symmetrical.

Symmetrical Triangles Can Be Profitable Short

Symmetrical triangles provide no clear breakout direction, but 45% break out to the downside making it possible to trade on the short side. Just 44% of these breakouts are profitable and on average the profit per trade is only 0.33% over a period of 9 days. The symmetrical triangle is not one of the best chart patterns when it breaks to the downside, but applying some filters can make this pattern more attractive to trade.

Improve Your Trades

Short breakouts from symmetrical triangles work better in falling markets which is clear from the historical results that were achieved. The market, sector and the stock should be in a down trend or consolidating for the best results when trading symmetrical triangles short.

A breakout from a symmetrical triangle is best if it occurs later in the pattern, but not near the start. The best trades occur when a down side break occurs after the stock bounces off the lower boundary and drops back before hitting the upper boundary.

Ensure that the volume is supportive of the breakout, i.e. volume as the stock falls is greater than volume as the stock rises. One last filter that improves the results is to look for the share to close lower prior to the breakout.

Symmetrical Triangles Profitable on the Short Side as Well

You can improve your trading results by using a series of simple filters that have been outlined here. This select group of symmetrical triangles delivers an average profit of 1.58% in 9 days and is profitable on 47% of the trades. Overall this makes symmetrical triangles attractive to trade on the short side.

Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 – 2008.

Jeff Cartridge is a private trader and created the website LearnCFDs.com Discover Patterns of Success

Tips for Trading Symmetrical Triangles Long with CFDs

The symmetrical triangle is sometimes referred to as a wedge. It is a very well known and easily recognized chart pattern that has been used by many successful traders over the years. A symmetrical triangle is formed when the price action is contained within two lines. The top line slopes down while the bottom line slopes up towards the top line. The angle of the two lines is similar giving rise to the name symmetrical.

Symmetrical Triangles, Unpredictable but Profitable

Symmetrical triangle breakouts show a slight bias to the upside with patterns breaking up 56% of the time. This upward bias is likely due to the overall bullish bias of the market as the symmetrical nature of the pattern does not clearly indicate a breakout direction. The breakout of symmetrical triangles can deliver strong returns with 44% of the patterns being profitable. The average return for the long trades is 0.85% in 9 days.

Refine Your Entries

Unusually symmetrical triangles do not work well when the market is an up trend, but perform better when the market is consolidating or falling. As would be expected, both the sector and the share should be consolidating or in an up trend.

Symmetrical triangles are sensitive to the length of the pattern with breakouts that occur in less than 25 days, from the start of the pattern, performing the best. While the pattern breakout works best in the range specified, avoid trading patterns that breakout early, in the first 30% of the pattern length.

If the volume is very strong in support of the breakout the results are better. Supportive volume means the volume on the way up is 40% higher than the volume on the way down.

Symmetrical Triangles Deliver Strong Profits

You can improve your trading results by using a series of simple filters that have been outlined here. This select group of symmetrical triangles delivers an average profit of 1.87% in 11 days and is profitable on 55% of the trades. Overall this makes symmetrical triangles attractive to trade.

Note: Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 – 2008.

Tips for Trading Descending Triangles Short

The descending triangle is the most profitable chart pattern when trading short. The descending triangle is formed with the lower boundary of the price movement contained by a line close to horizontal and the top line slopes down toward the bottom line.

Descending Triangles, Surprise On The Upside

The descending triangle does break down more than it breaks up with this occurring in 57% of the patterns. A downside breakout is profitable 45% of the time delivering an average profit of 0.92% in 9 days. A large number of downside breakouts (12.1%) return in excess of 10% gain.

Specific Setups to Improve Profitability

Short breakouts work better in falling markets which is clear from the results that were achieved in 2002 and 2008, so the market should be falling or consolidating. The best results are achieved trading descending triangles when the sector is falling. For some reason the trend of the sector at the start of the pattern is more important than the trend of the sector prior to the breakout.

Breakouts can occur anywhere along the length of the descending triangle pattern. Another key to picking successful short breakouts from descending triangles is to look for a turning point up from the lower boundary that fails to reach the upper boundary and then falls away.

If volume supports a descending triangle breakout then the profitability of the trades improves. For volume to support the breakout, volume when the stock is going down should be greater than volume when the stock is going up.

Trading Descending Triangles Can Be Profitable

Incorporating these simple changes when selecting descending triangles to trade short, dramatically improves the results. With an average return per trade of 2.55% in 10 days and a hit rate of 48% descending triangles are one of the most profitable patterns to trade on the short side.

Note: Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 – 2008.

Ascending Triangles – Long Trading Strategy

The ascending triangle is a very well known chart pattern that has been used by many successful traders over the years. An ascending triangle is formed when the price action is contained within two lines. The top line is close to horizontal while the bottom line slopes up towards the top line.

Ascending Triangles, A Traders Favourite Pattern

Most ascending triangles, in fact 63%, break out to the upside making this pattern very predictable. Around half (51%) of these breakouts are profitable and on average the profit per trade is 1.43% over a period of 10 days.

The high chance that the ascending triangle will break to the upside, together with some strong moves when the pattern does breakout, makes this pattern attractive to trade.

Refine Your Entries

A long breakout from an ascending triangle works better in a rising market which is clear from the poor performance in 2002 and 2008. Ensure the market is in a consolidation phase or an up trend prior to the breakout. Check the sector is in an up trend as well.

A breakout from an ascending triangle ideally occurs before the pattern gets 90% of the way to the point of the pattern. If it goes all the way to the end it will produce smaller profits. In a similar way patterns with a very low height relative to the stock price (2% or less) produce smaller returns.

Illiquid stock can be identified by two identical closes or lows and if this is the case you are better to avoid these trades. If volume supports an ascending triangle breakout then the profitability of the trades improves. For volume to support the breakout, volume when the stock is going up should be greater than volume when the stock is going down.

Ascending Triangles Are Very Profitable

You can improve your trading results by using a series of simple filters that have been outlined here. This select group of ascending triangles delivers an average profit of 1.83% in 10 days and is profitable on 58% of the trades. Overall this makes ascending triangles attractive to trade.

Note: Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 – 2008.