Tips for Trading Ascending Triangles Short
The ascending triangle chart pattern is a very well known pattern that has been used by many successful traders over the years on the long side, but is not always traded short. An ascending triangle is formed when the price action is contained within two lines. The top line is close to horizontal while the bottom line slopes up towards the top line.
Ascending Triangles Can Be Profitable Short
The ascending triangle is not often traded as a short pattern, but when it does break down, historically 36% of the time, it can be profitable. An ascending triangle breakout to the downside is not as reliable as a breakout to the upside with only 44% of the trades profitable. The average profits are also less at 0.31% in 9 days.
Improve Your Trades
As you would expect a break to the downside works better in a falling market environment, but the best trades actually occur at market turning points. By using filters that require the market and the stock to be in a consolidation or an up trend, while the sector is in a consolidation or a down trend, you can improve the results.
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Ascending triangles that breakout early in the pattern, produce inferior results to those that breakout later. It is acceptable for the stock to move all the way to the point of the pattern before breaking out. The best results are achieved when the stock climbs up from the lower boundary and collapses back before reaching the upper boundary of the pattern.
If volume supports an ascending triangle 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.
Short Trading Ascending Triangles Can Be Profitable
You can improve your trading results by using a series of simple filters that have been outlined here. This select group of ascending triangles delivers an average profit of 1.07% in 10 days and is profitable on 52% of the trades. Overall this makes ascending triangles mildly attractive to trade on the short side.
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.
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