The rising channel can be traded very successfully on the long side entering the trade as the stock breaks out to the upside. This is not how you would normally trade this pattern though as the text books will tell you to trade it when it breaks down. The pattern forms when the two boundary lines that contain the price movement are almost parallel. The top and bottom line both slope up.
Rising Channel, Ok To Trade
Rising channels are normally patterns that would be considered to trade on the short side, but also can perform on the upside. 51% of the patterns break upwards and can deliver good returns when they do. The average gain is 0.53% in 8 days with under half of the breakouts (40%) being profitable. There are better patterns to trade on the long side, but selecting the right conditions can make trading a rising channel attractive.
Improve Your Trades
A break to the upside works better in bull market conditions. By using filters that require the market to be in a consolidation or an up trend you can improve the results. The sector should be in a trend, up or down and the stock should be in a down trend or a consolidation for the best results. Profitable entries tend to occur when there is a pull back in the stock in a market up trend.
Tall patterns are best avoided when trading rising channels. A tall pattern is where the pattern height is more than 10% when compared to the stock price. Also avoid patterns that take more than 40 days to form. If a pattern has been formed around a large candle that marks both the top and bottom of the pattern it does not perform strongly.
Avoid rising channels where there are two consecutive closes, highs or lows at the same level prior to the breakout. These are often signs of an illiquid stock. Ensure that the volume is supportive of the breakout, i.e. volume as the stock rises is greater than volume as the stock falls.
Rising Channel Can Be Profitable
Following a series of rules to determine which rising channel to trade can improve results dramatically, but heavy filtering is required, more than 2000 trades are reduced to less than 100 to get decent results. By applying these filters rising channels are profitable on 63% of the trades and return an average of 2.11% per trade in 10 days. This is a 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. - 29971
Rising Channel, Ok To Trade
Rising channels are normally patterns that would be considered to trade on the short side, but also can perform on the upside. 51% of the patterns break upwards and can deliver good returns when they do. The average gain is 0.53% in 8 days with under half of the breakouts (40%) being profitable. There are better patterns to trade on the long side, but selecting the right conditions can make trading a rising channel attractive.
Improve Your Trades
A break to the upside works better in bull market conditions. By using filters that require the market to be in a consolidation or an up trend you can improve the results. The sector should be in a trend, up or down and the stock should be in a down trend or a consolidation for the best results. Profitable entries tend to occur when there is a pull back in the stock in a market up trend.
Tall patterns are best avoided when trading rising channels. A tall pattern is where the pattern height is more than 10% when compared to the stock price. Also avoid patterns that take more than 40 days to form. If a pattern has been formed around a large candle that marks both the top and bottom of the pattern it does not perform strongly.
Avoid rising channels where there are two consecutive closes, highs or lows at the same level prior to the breakout. These are often signs of an illiquid stock. Ensure that the volume is supportive of the breakout, i.e. volume as the stock rises is greater than volume as the stock falls.
Rising Channel Can Be Profitable
Following a series of rules to determine which rising channel to trade can improve results dramatically, but heavy filtering is required, more than 2000 trades are reduced to less than 100 to get decent results. By applying these filters rising channels are profitable on 63% of the trades and return an average of 2.11% per trade in 10 days. This is a 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. - 29971
About the Author:
Jeff Cartridge is a private trader and created the website LearnCFDs.com Ways to Make Serious Money With A Small Investment
