Descending Triangles - Long Trading Strategy
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, Unexpected Returns
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 long breakout from a descending triangle works better in a rising market and sector environment. Ensure both the market and sector, are in a consolidation phase or an up trend prior to the breakout. The stock will usually be falling as it forms the pattern. Essentially you are trading the descending triangle when it forms during a pull back in a bullish environment.
Descending triangles that breakout early in the pattern, produce inferior results. A breakout is better if it occurs after the pattern gets 30% of the way to the point of the pattern. Shallow patterns are also best avoided, where the pattern height is less than 2% when compared to the stock price.
Descending triangles with two highs at the same price or two closes at the same price should be avoided, as this usually occurs in an illiquid stock. If the volume supports the breakout the results are better. Supportive volume means the volume on the way up is higher than the volume on the way down.
Descending Triangles Can Deliver Good Profits
Following a series of simple rules to determine which descending triangle to trade can improve results dramatically. By applying these filters descending triangles are profitable on 51% of the trades and return an average of 1.45% per trade in 10 days. This is a profitable pattern 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. - 23310
Descending Triangles, Unexpected Returns
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 long breakout from a descending triangle works better in a rising market and sector environment. Ensure both the market and sector, are in a consolidation phase or an up trend prior to the breakout. The stock will usually be falling as it forms the pattern. Essentially you are trading the descending triangle when it forms during a pull back in a bullish environment.
Descending triangles that breakout early in the pattern, produce inferior results. A breakout is better if it occurs after the pattern gets 30% of the way to the point of the pattern. Shallow patterns are also best avoided, where the pattern height is less than 2% when compared to the stock price.
Descending triangles with two highs at the same price or two closes at the same price should be avoided, as this usually occurs in an illiquid stock. If the volume supports the breakout the results are better. Supportive volume means the volume on the way up is higher than the volume on the way down.
Descending Triangles Can Deliver Good Profits
Following a series of simple rules to determine which descending triangle to trade can improve results dramatically. By applying these filters descending triangles are profitable on 51% of the trades and return an average of 1.45% per trade in 10 days. This is a profitable pattern 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. - 23310
About the Author:
Jeff Cartridge has been trading CFDs since 2002and created the website LearnCFDs.com Trading Chart Patterns - All The Insider Tricks
posted by Mr. Forex at
3:59 AM
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