Trading Strategy - Descending Triangles Upside Breakout
Descending triangles have been very popular with traders on the short side, but not so often traded when it breaks in the upward direction. A descending triangle is defined by two lines, one on the lower boundary of the price movement which is horizontal and one on the upper side which slopes down.
Descending Triangles, Surprise On The Upside
Most descending triangles would be expected to break down but, in fact 43%, break out to the upside making this pattern tradable on the long side. Only 41% of these breakouts are profitable and on average the profit per trade is 0.87% over a period of 8 days. The descending triangle is not the best chart pattern when it breaks to the upside, but applying some filters makes this pattern attractive to trade.
Improve Your Trades
When you look at the performance of a descending triangle in bearish market conditions you will see the results were not as strong as they were in more bullish years. Trading descending triangles when both the sector and the market, are in an up trend or consolidating improves your trading results. Because of the shape of the pattern the share will naturally be in a down trend so in effect you are entering a retracement in the share during a bullish market phase.
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.
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
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.
Article Source: FxTradingStock.com
About the Author
Jeff Cartridge has been trading CFDs since 2002and created the website LearnCFDs.com My Results with This Controversial Pattern Strategy
by: Jeff Cartridge
Total views: 88
Word Count: 425
Date: Fri, 14 Aug 2009
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