Descending Triangles - Long Trading Strategy
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, Unexpected Returns
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.
Refine Your Entries
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.
Avoid trading descending triangle patterns that breakout early, in the first 30% of the pattern. Likewise avoid very shallow patterns where the height of the pattern is less than 2% of 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
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. - 23212
Descending Triangles, Unexpected Returns
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.
Refine Your Entries
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.
Avoid trading descending triangle patterns that breakout early, in the first 30% of the pattern. Likewise avoid very shallow patterns where the height of the pattern is less than 2% of 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
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. - 23212
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 X - Men @ 3:59 AM
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