Rectangles -Short Trading Strategy
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 Can Be Profitable Short
The rectangle can be traded both long and short and when it does break down, historically 46% of the time, it can be profitable. A rectangle breakout to the downside is not as reliable as a breakout to the upside with only 42% of the trades profitable. The average profits is not even positive at just -0.03% in 10 days.
Specific Setups to Improve Profitability
When you look at the performance of a rectangle there is an unusual combination of market, sector and stock trends. The market should be consolidating or in an up trend. The sector is best if it is not consolidating, while the stock should be consolidating to make the best profits.
Another key to picking successful short breakouts from rectangles is to ignore patterns formed by an outside day candle prior to the breakout. Also avoid patterns that have higher highs or equal closes prior to the breakout.
If volume supports a rectangle breakout then the profitability of the trades improves. For volume to support the breakout, volume when the stock is going down should be greater than volume when the stock is going up.
Rectangles Profitable on the Short Side as Well
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. - 23196
Rectangles Can Be Profitable Short
The rectangle can be traded both long and short and when it does break down, historically 46% of the time, it can be profitable. A rectangle breakout to the downside is not as reliable as a breakout to the upside with only 42% of the trades profitable. The average profits is not even positive at just -0.03% in 10 days.
Specific Setups to Improve Profitability
When you look at the performance of a rectangle there is an unusual combination of market, sector and stock trends. The market should be consolidating or in an up trend. The sector is best if it is not consolidating, while the stock should be consolidating to make the best profits.
Another key to picking successful short breakouts from rectangles is to ignore patterns formed by an outside day candle prior to the breakout. Also avoid patterns that have higher highs or equal closes prior to the breakout.
If volume supports a rectangle breakout then the profitability of the trades improves. For volume to support the breakout, volume when the stock is going down should be greater than volume when the stock is going up.
Rectangles Profitable on the Short Side as Well
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. - 23196
About the Author:
Jeff Cartridge is a private trader and created the website LearnCFDs.com A Simple Timeless Method for Huge Gains
posted by X - Men @ 4:04 AM
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