The descending triangle is the most profitable chart pattern when trading short. The descending triangle is formed with the lower boundary of the price movement contained by a line close to horizontal and the top line slopes down toward the bottom line.
Descending Triangles Best Traded Short
Most descending triangles would be expected to break down and in fact 57%, break out to the downside making this pattern best when traded on the short side. 45% of these breakouts are profitable and on average the profit per trade is 0.92% over a period of 9 days. A good proportion, 12.1% of these breakouts make a profit of 10% or more. The descending triangle is one of the best chart patterns when it breaks to the downside and applying some filters makes this pattern even more attractive to trade.
Refine Your Entries
When you look at the performance of a descending triangle in bearish market conditions you will see the results were stronger than they were in more bullish years. Trading descending triangles when the market is in a down trend or consolidating improves your trading results. The sector should be falling to make the most profits. Unusually the trend of the sector at the end of the pattern, prior to the breakout is less important than the sector trend at the start of the pattern.
Descending triangles that breakout early in the pattern, produce similar results to those that breakout later, so this is not an important filter to use. 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.
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.
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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