Trading Strategy - Descending Triangles Upside Breakout
The Descending triangle is a very well known chart pattern that is usually traded short, but can also be traded if it breaks out to the upside. A descending triangle is formed when the price action is contained within two lines. The bottom line is close to horizontal while the top line slopes down towards the bottom line.
Descending Triangles, Surprise On The Upside
The breakout of the descending triangle would be expected to be down, but a strong support level causes 43% of the patterns to break to the upside. The upside breakout of descending triangles can deliver positive returns with 41% of the patterns being profitable. The average return for the long trades is 0.87% in 8 days. So it is not the best pattern to trade long, but could be profitable.
Refine Your Entries
A break to the upside works better in a rising market or sector environment. By using filters that require the market and sector to be in a consolidation or an up trend you can improve the results. Because the upper line is sloping down the stock will be in a short term downtrend. Profitable entries tend to occur as a pull back in an up trend.
A breakout from a descending triangle ideally occurs after the pattern gets 30% of the way to the point of the pattern. Avoid patterns that breakout early. In a similar way patterns with a very low height relative to the share price (2% or less) produces smaller returns.
Illiquid stock can sometimes be identified by two identical closes or highs and if this is the case you are better to avoid these trades. 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 up should be greater than volume when the stock is going down.
Descending Triangles Can Be Profitable
You can improve your trading results by using a series of simple filters that have been outlined here. This select group of descending triangles delivers an average profit of 1.45% in 10 days and is profitable on 51% of the trades. Overall this makes descending 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. - 23211
Descending Triangles, Surprise On The Upside
The breakout of the descending triangle would be expected to be down, but a strong support level causes 43% of the patterns to break to the upside. The upside breakout of descending triangles can deliver positive returns with 41% of the patterns being profitable. The average return for the long trades is 0.87% in 8 days. So it is not the best pattern to trade long, but could be profitable.
Refine Your Entries
A break to the upside works better in a rising market or sector environment. By using filters that require the market and sector to be in a consolidation or an up trend you can improve the results. Because the upper line is sloping down the stock will be in a short term downtrend. Profitable entries tend to occur as a pull back in an up trend.
A breakout from a descending triangle ideally occurs after the pattern gets 30% of the way to the point of the pattern. Avoid patterns that breakout early. In a similar way patterns with a very low height relative to the share price (2% or less) produces smaller returns.
Illiquid stock can sometimes be identified by two identical closes or highs and if this is the case you are better to avoid these trades. 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 up should be greater than volume when the stock is going down.
Descending Triangles Can Be Profitable
You can improve your trading results by using a series of simple filters that have been outlined here. This select group of descending triangles delivers an average profit of 1.45% in 10 days and is profitable on 51% of the trades. Overall this makes descending 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. - 23211
About the Author:
Jeff Cartridge has been trading CFDs since 2002and created the website LearnCFDs.com Discover Patterns of Success
posted by X - Men @ 12:49 AM
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