Tips for Trading Rectangles Long with CFDs
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, Unpredictable But Profitable
Rectangle breakouts show a slight bias to the upside with patterns breaking up 54% of the time. This upward bias is likely due to the overall bullish bias of the market as the symmetrical nature of the pattern does not clearly indicate a breakout direction. The breakout of rectangles can deliver strong returns with 56% of the patterns being profitable. The average return for the long trades is 1.15% in 12 days.
Improve Your Trades
When you look at the performance of a rectangle the pattern works better when the market is rising. Trading rectangles when the market is in an up trend or consolidating improves your trading results. If the sector and the stock are consolidating or rising this also improves the performance of the pattern.
Rectangles are sensitive to the length of the pattern with breakouts that occur between 10 and 35 days, from the start of the pattern, performing the best. While the pattern breakout works best in the range specified, it is not important if the pattern breakout is early or late in the pattern.
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 up should be greater than volume when the stock is going down. Also avoid patterns that are formed by a single large candle and have lower highs before the breakout.
Rectangles Can Be Very Profitable
Following a series of simple rules to determine which rectangle to trade can improve results dramatically. By applying these filters rectangles are profitable on a stunning 71% of the trades and return an average of 1.89% per trade in 13 days. This is a very predictable pattern 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. - 23159
Rectangles, Unpredictable But Profitable
Rectangle breakouts show a slight bias to the upside with patterns breaking up 54% of the time. This upward bias is likely due to the overall bullish bias of the market as the symmetrical nature of the pattern does not clearly indicate a breakout direction. The breakout of rectangles can deliver strong returns with 56% of the patterns being profitable. The average return for the long trades is 1.15% in 12 days.
Improve Your Trades
When you look at the performance of a rectangle the pattern works better when the market is rising. Trading rectangles when the market is in an up trend or consolidating improves your trading results. If the sector and the stock are consolidating or rising this also improves the performance of the pattern.
Rectangles are sensitive to the length of the pattern with breakouts that occur between 10 and 35 days, from the start of the pattern, performing the best. While the pattern breakout works best in the range specified, it is not important if the pattern breakout is early or late in the pattern.
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 up should be greater than volume when the stock is going down. Also avoid patterns that are formed by a single large candle and have lower highs before the breakout.
Rectangles Can Be Very Profitable
Following a series of simple rules to determine which rectangle to trade can improve results dramatically. By applying these filters rectangles are profitable on a stunning 71% of the trades and return an average of 1.89% per trade in 13 days. This is a very predictable pattern 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. - 23159
About the Author:
Jeff Cartridge is a private trader and created the website LearnCFDs.com Discover Patterns of Success
posted by X - Men @ 3:52 AM
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