Tips for Trading Rising Channels Long With CFDs
The rising channel is a well known chart pattern that you would expect to trade on the short side, but can also be traded if it breaks out to the upside. A rising channel is formed when the price action is contained within two lines. Both the bottom line and the top line slope up, with both lines near to parallel.
Rising Channel, Surprise On The Upside
Rising channels are normally patterns that would be considered to trade on the short side, but also can perform on the upside. 51% of the patterns break upwards and can deliver good returns when they do. The average gain is 0.53% in 8 days with under half of the breakouts (40%) being profitable. There are better patterns to trade on the long side, but selecting the right conditions can make trading a rising channel attractive.
Specific Setups to Improve Profitability
When you look at the performance of a rising channel in bearish market conditions you will see the results were not as strong as they were in more bullish years. Trading a rising channel when the market is in an up trend or consolidating improves your trading results. The sector is best if it is in an up trend or a down trend, while the stock is ideally in a down trend or a consolidation. So in effect you are entering a retracement in the stock during a bullish market phase.
Tall patterns are best avoided when trading rising channels. A tall pattern is where the pattern height is more than 10% when compared to the stock price. Also avoid patterns that take more than 40 days to form. If a pattern has been formed around a large candle that marks both the top and bottom of the pattern it does not perform strongly.
Illiquid stock can sometimes be identified by two identical lows, closes or highs and if this is the case you are better to avoid these trades. If volume supports a rising channel 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.
Rising Channel Can Be Profitable
By following some simple rules the profitability of trading rising channels can be improved substantially. With an average return per trade of four times the base level at 2.11% in 10 days and a hit rate of 63% rising channel can be traded very successfully when the conditions are right. These filters dramatically reduce the number of trades that can be taken from over 2000 down to just under 100, so it a small subset of the rising channels that produce the best results.
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
Rising Channel, Surprise On The Upside
Rising channels are normally patterns that would be considered to trade on the short side, but also can perform on the upside. 51% of the patterns break upwards and can deliver good returns when they do. The average gain is 0.53% in 8 days with under half of the breakouts (40%) being profitable. There are better patterns to trade on the long side, but selecting the right conditions can make trading a rising channel attractive.
Specific Setups to Improve Profitability
When you look at the performance of a rising channel in bearish market conditions you will see the results were not as strong as they were in more bullish years. Trading a rising channel when the market is in an up trend or consolidating improves your trading results. The sector is best if it is in an up trend or a down trend, while the stock is ideally in a down trend or a consolidation. So in effect you are entering a retracement in the stock during a bullish market phase.
Tall patterns are best avoided when trading rising channels. A tall pattern is where the pattern height is more than 10% when compared to the stock price. Also avoid patterns that take more than 40 days to form. If a pattern has been formed around a large candle that marks both the top and bottom of the pattern it does not perform strongly.
Illiquid stock can sometimes be identified by two identical lows, closes or highs and if this is the case you are better to avoid these trades. If volume supports a rising channel 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.
Rising Channel Can Be Profitable
By following some simple rules the profitability of trading rising channels can be improved substantially. With an average return per trade of four times the base level at 2.11% in 10 days and a hit rate of 63% rising channel can be traded very successfully when the conditions are right. These filters dramatically reduce the number of trades that can be taken from over 2000 down to just under 100, so it a small subset of the rising channels that produce the best results.
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 CFDs since 2002 and created the website LearnCFDs.com A Simple Timeless Method for Huge Gains
posted by X - Men @ 7:05 AM
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