CFD Trading Strategy - Rising Channel Upside Breakout
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, Unexpected Returns
The breakout of the rising channel would be expected to be down and conventional wisdom would have you trading this pattern short. In reality 49% of the patterns break to the upside, so it is a 50/50 call on which direction the move will be. The upside breakout of rising channels can deliver positive returns with 41% of the patterns being profitable. The average return for the long trades is 0.53% in 8 days. This is a reasonable performance on the long side and is in fact better than trading this pattern short.
Improve Your Trades
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.
Rising channel with two highs, lows or closes at the same price should be avoided, as this usually occurs in an illiquid stock. If the volume supports the breakout the results are better. Supportive volume means the volume on the way up is higher than the volume on the way down.
Rising Channels Can Deliver Good Profits
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. - 23196
Rising Channel, Unexpected Returns
The breakout of the rising channel would be expected to be down and conventional wisdom would have you trading this pattern short. In reality 49% of the patterns break to the upside, so it is a 50/50 call on which direction the move will be. The upside breakout of rising channels can deliver positive returns with 41% of the patterns being profitable. The average return for the long trades is 0.53% in 8 days. This is a reasonable performance on the long side and is in fact better than trading this pattern short.
Improve Your Trades
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.
Rising channel with two highs, lows or closes at the same price should be avoided, as this usually occurs in an illiquid stock. If the volume supports the breakout the results are better. Supportive volume means the volume on the way up is higher than the volume on the way down.
Rising Channels Can Deliver Good Profits
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. - 23196
About the Author:
Jeff Cartridge is a private trader and created the website LearnCFDs.com My Results with This Controversial Pattern Strategy
posted by X - Men @ 12:47 AM
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