Tips for Trading Rectangles Short
The rectangle is sometimes referred to as a channel or a consolidation. It is a very well known and easily recognized chart pattern that has been used by many successful traders over the years, including Nicolas Darvas who made over $2 million in the stock market using a variation of the rectangle he called a Darvas box. A rectangle is formed when the price action is contained within two lines. Both the top line and bottom line are close to horizontal and the two lines are parallel.
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
Short breakouts from rectangles work better in very specific market conditions. The market should be in an up trend or consolidating. The sector should not be in a consolidation, but the stock should be consolidating for the best results when trading rectangles short.
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.
Short Trading Rectangles Can Be Profitable
Following a series of fairly complex rules to determine which rectangle to trade can improve the results. However there is a danger that these filters are over optimizing to achieve the desired result. By applying these filters rectangles are profitable on 63% of the trades and return an average of 1.07% per trade in 13 days. There are more profitable patterns 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. - 23162
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
Short breakouts from rectangles work better in very specific market conditions. The market should be in an up trend or consolidating. The sector should not be in a consolidation, but the stock should be consolidating for the best results when trading rectangles short.
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.
Short Trading Rectangles Can Be Profitable
Following a series of fairly complex rules to determine which rectangle to trade can improve the results. However there is a danger that these filters are over optimizing to achieve the desired result. By applying these filters rectangles are profitable on 63% of the trades and return an average of 1.07% per trade in 13 days. There are more profitable patterns 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. - 23162
About the Author:
Jeff Cartridge is a private trader and created the website LearnCFDs.com Ways to Make Serious Money With A Small Investment
posted by X - Men @ 4:04 AM
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