Trading Strategy - Descending Triangles Upside Breakout
The descending triangle can be traded very successfully on the long side entering the trade as the stock breaks out to the upside. The pattern forms when the two boundary lines that contain the price movement converge to a point. The top line slopes down toward the bottom line which is horizontal.
Descending Triangles, Ok To Trade
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.
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.
Avoid descending triangles where there are two consecutive closes at the same level or two consecutive highs at the same level prior to the breakout. These are often signs of an illiquid stock. Ensure that the volume is supportive of the breakout, i.e. volume as the stock rises is greater than volume as the stock falls.
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. - 23221
Descending Triangles, Ok To Trade
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.
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.
Avoid descending triangles where there are two consecutive closes at the same level or two consecutive highs at the same level prior to the breakout. These are often signs of an illiquid stock. Ensure that the volume is supportive of the breakout, i.e. volume as the stock rises is greater than volume as the stock falls.
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. - 23221
About the Author:
Jeff Cartridge has been trading chart patterns since 1998 and created the website LearnCFDs.com A Simple Timeless Method for Huge Gains
posted by X - Men @ 2:32 AM
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