Trading Strategy - Descending Triangles Downside Breakout

Trading Strategy – Descending Triangles Downside Breakout

Descending triangles have been very popular with traders on the short side and are not so often traded when it breaks in the upward direction. A descending triangle is defined by two lines, one on the lower boundary of the price movement which is horizontal and one on the upper side which slopes down.

Descending Triangles Best Traded Short

The descending triangle does break down more than it breaks up with this occurring in 57% of the patterns. A downside breakout is profitable 45% of the time delivering an average profit of 0.92% in 9 days. A large number of downside breakouts (12.1%) return in excess of 10% gain.

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Short breakouts work better in falling markets which is clear from the results that were achieved in 2002 and 2008, so the market should be falling or consolidating. The best results are achieved trading descending triangles when the sector is falling. For some reason the trend of the sector at the start of the pattern is more important than the trend of the sector prior to the breakout.

A breakout from a descending triangle can occur anywhere on the way to the point of the pattern; it is not important exactly where the breakout occurs. The best trades occur when a down side break occurs after the stock bounces off the lower boundary and drops back before hitting the upper boundary.

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Ensure that the volume is supportive of the breakout, i.e. volume as the share falls is greater than volume as the share rises.

Descending Triangles, Profitable When the Markets Is Not

Following a series of simple rules to determine which descending triangle to trade can improve results dramatically. By applying these filters descending triangles are profitable on 48% of the trades and return an average of 2.55% per trade in 10 days. This is a very profitable 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.

Jeff Cartridge is a private trader and created the website LearnCFDs.com A Simple Timeless Method for Huge Gains