Rising Channels - Long CFD Trading Strategy

By Jeff Cartridge

The rising channel can be traded very successfully on the long side entering the trade as the stock breaks out to the upside. This is not how you would normally trade this pattern though as the text books will tell you to trade it when it breaks down. The pattern forms when the two boundary lines that contain the price movement are almost parallel. The top and bottom line both slope up.

Rising Channel, Unexpected Returns

Rising channels are normally patterns that would be considered to trade on the short side, but also can perform on the upside. 51% of the patterns break upwards and can deliver good returns when they do. The average gain is 0.53% in 8 days with under half of the breakouts (40%) being profitable. There are better patterns to trade on the long side, but selecting the right conditions can make trading a rising channel attractive.

Refine Your Entries

A long breakout from a rising channel works better in bullish market conditions. A rising or consolidating market is beneficial and the sector environment should not be in consolidation, but rising or falling. The stock should also be falling or consolidating. Essentially you are best trading the rising channel long when the stock has a pull back in a bullish market environment.

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.

Trading Rising Channel Can Be Profitable

You can improve your trading results by using a series of filters that have been outlined here. This select group of rising channel delivers an average profit of 2.11% in 10 days and is profitable on 63% of the trades. Overall this makes rising channel attractive to trade, but these filters do significantly reduce the number of trading opportunities.

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. - 23218

About the Author:

Jeff Cartridge has been trading CFDs since 2002 and created the website LearnCFDs.com Discover Patterns of Success