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 Profitable Short
Rectangles are definitely not one of the most predictable patterns that are available to trade short. With just 46% of the patterns breaking down rectangles also don't deliver good returns when they do. The average gain is negative, -0.03% in 10 days with less than half of the breakouts (42%) being profitable. These results aren't great, but selecting the right conditions can make trading rectangles better.
Specific Setups to Improve Profitability
Short breakouts from rectangles work better in very specific market conditions. The market should be in an up trend or consolidating. The sector should not be in a consolidation, but the stock should be consolidating for the best results when trading rectangles short.
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.
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 down should be greater than volume when the stock is going up.
Rectangles Profitable on the Short Side as Well
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.
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. - 23305
Rectangles Can Be Profitable Short
Rectangles are definitely not one of the most predictable patterns that are available to trade short. With just 46% of the patterns breaking down rectangles also don't deliver good returns when they do. The average gain is negative, -0.03% in 10 days with less than half of the breakouts (42%) being profitable. These results aren't great, but selecting the right conditions can make trading rectangles better.
Specific Setups to Improve Profitability
Short breakouts from rectangles work better in very specific market conditions. The market should be in an up trend or consolidating. The sector should not be in a consolidation, but the stock should be consolidating for the best results when trading rectangles short.
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.
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 down should be greater than volume when the stock is going up.
Rectangles Profitable on the Short Side as Well
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.
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. - 23305
About the Author:
Jeff Cartridge is a private trader and created the website LearnCFDs.com Discover Patterns of Success
posted by Mr. Forex at
8:03 AM
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