Rectangles -Short Trading Strategy
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 Can Be Traded Short
Rectangles provide no clear breakout direction, but 46% break out to the downside making it possible to trade on the short side. Just 42% of these breakouts are profitable and on average the profit per trade is negative -0.03% over a period of 10 days. The rectangle is not one of the best chart patterns when it breaks to the downside, but applying some filters can make this pattern more attractive to trade.
Refine Your Entries
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.
A breakout from a rectangle is best if the pattern is not formed by a large candle touching both boundaries. This does not happen very often. The best trades occur if the stock has lower highs and does not have a close equal to the previous day, before the breakout occurs.
Ensure that the volume is supportive of the breakout, i.e. volume as the stock falls is greater than volume as the stock rises.
Short Trading 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. - 23223
Rectangles Can Be Traded Short
Rectangles provide no clear breakout direction, but 46% break out to the downside making it possible to trade on the short side. Just 42% of these breakouts are profitable and on average the profit per trade is negative -0.03% over a period of 10 days. The rectangle is not one of the best chart patterns when it breaks to the downside, but applying some filters can make this pattern more attractive to trade.
Refine Your Entries
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.
A breakout from a rectangle is best if the pattern is not formed by a large candle touching both boundaries. This does not happen very often. The best trades occur if the stock has lower highs and does not have a close equal to the previous day, before the breakout occurs.
Ensure that the volume is supportive of the breakout, i.e. volume as the stock falls is greater than volume as the stock rises.
Short Trading 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. - 23223
About the Author:
Jeff Cartridge has been trading chart patterns since 1998 and created the website LearnCFDs.com A Simple Timeless Method for Huge Gains
posted by X - Men @ 2:54 AM
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