Rectangles - Long Trading Strategy with CFDs
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, Breakout Unclear
Rectangles show no clear tendency to break up or down. Despite the fact 54% of the patterns break out to the upside this is likely due to the fact the market tends to move higher. Around half (56%) of these breakouts are profitable and on average the profit per trade is 1.15% over a period of 12 days.
Refine Your Entries
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.
Volume is important with rectangles ensure that the volume is supportive of the breakout with the volume as the share rises more than volume as the share falls. Avoid patterns that have lower highs prior to the breakout or the last turning point is formed by a single outside candle.
Rectangles Deliver Strong Profits
By following these simple rules profitability of trading rectangles can be improved substantially. With an average return per trade of 1.89% in 13 days and an extremely high hit rate of 71% it is understandable why many traders are drawn to the rectangle.
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. - 23208
Rectangles, Breakout Unclear
Rectangles show no clear tendency to break up or down. Despite the fact 54% of the patterns break out to the upside this is likely due to the fact the market tends to move higher. Around half (56%) of these breakouts are profitable and on average the profit per trade is 1.15% over a period of 12 days.
Refine Your Entries
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.
Volume is important with rectangles ensure that the volume is supportive of the breakout with the volume as the share rises more than volume as the share falls. Avoid patterns that have lower highs prior to the breakout or the last turning point is formed by a single outside candle.
Rectangles Deliver Strong Profits
By following these simple rules profitability of trading rectangles can be improved substantially. With an average return per trade of 1.89% in 13 days and an extremely high hit rate of 71% it is understandable why many traders are drawn to the rectangle.
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. - 23208
About the Author:
Jeff Cartridge is the author of Supercharge Your Trading with CFDs and created the website LearnCFDs.com My Results with This Controversial Pattern Strategy
posted by X - Men @ 3:22 AM
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