Tips for Trading Rectangles Short
Rectangles have been very popular with traders over the years trading the chart pattern when it breaks out in either direction. A rectangle is defined by two lines, one on the upper boundary of the price movement and one on the lower boundary, both of which are horizontal. The lines are parallel. These can be referred to as consolidations or channels, or the well known Darvas Box, used by Nicolas Darvas to make $2 million in the markets.
Rectangles Can Be Traded 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
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.
Ensure that the volume is supportive of the breakout, i.e. volume as the stock falls is greater than volume as the stock rises.
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.
Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 - 2008. - 23218
Rectangles Can Be Traded 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
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.
Ensure that the volume is supportive of the breakout, i.e. volume as the stock falls is greater than volume as the stock rises.
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.
Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 - 2008. - 23218
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 @ 2:49 AM
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