Trading Strategy - Rectangles Downside Breakout
The rectangle can be traded on the short side entering the trade as the stock breaks out of the pattern to the downside. The pattern forms when the two boundary lines that contain the price movement are parallel. The bottom line and the top line are both near to horizontal. Sometimes these may be called a channel or a consolidation, but the most famous version of this pattern was a variation by Nicolas Darvas, published in his book "How I Made $2 million in the Stock Market".
Rectangles, Not Usually Traded Short
Rectangles are definitely not one of the most predictable patterns that are available to trade short. With just 46% of the patterns breaking down rectangles also don't deliver good returns when they do. The average gain is negative, -0.03% in 10 days with less than half of the breakouts (42%) being profitable. These results aren't great, but selecting the right conditions can make trading rectangles better.
Improve Your Trades
A break to the downside requires certain market conditions to be effective. Avoid falling markets, so look for markets that are consolidating or rising. By using filters that require the stock to be in consolidation and the sector to be in a trend, either up or down, you can improve the results.
The best results are achieved when the pattern does not have an outside day candle prior to the breakout. Also patterns with equal closes or higher highs before the breakout perform poorly.
If the volume supports the breakout the results are better. Supportive volume means the volume on the way down is higher than the volume on the way up.
Short Trading Rectangles Can Be Profitable
When trading rectangles short these filters are very important to get good results, making this an extremely difficult pattern to trade short. With these filters in place, an average return per trade of 1.07% in 13 days and a hit rate of 63%. There are better patterns to trade short.
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. - 23204
Rectangles, Not Usually Traded Short
Rectangles are definitely not one of the most predictable patterns that are available to trade short. With just 46% of the patterns breaking down rectangles also don't deliver good returns when they do. The average gain is negative, -0.03% in 10 days with less than half of the breakouts (42%) being profitable. These results aren't great, but selecting the right conditions can make trading rectangles better.
Improve Your Trades
A break to the downside requires certain market conditions to be effective. Avoid falling markets, so look for markets that are consolidating or rising. By using filters that require the stock to be in consolidation and the sector to be in a trend, either up or down, you can improve the results.
The best results are achieved when the pattern does not have an outside day candle prior to the breakout. Also patterns with equal closes or higher highs before the breakout perform poorly.
If the volume supports the breakout the results are better. Supportive volume means the volume on the way down is higher than the volume on the way up.
Short Trading Rectangles Can Be Profitable
When trading rectangles short these filters are very important to get good results, making this an extremely difficult pattern to trade short. With these filters in place, an average return per trade of 1.07% in 13 days and a hit rate of 63%. There are better patterns to trade short.
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. - 23204
About the Author:
Jeff Cartridge has been trading CFDs since 2002 and created the website LearnCFDs.com Discover Patterns of Success
posted by X - Men @ 2:49 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home