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
Ascending triangles are definitely not one of the most predictable patterns that are available to trade short. With just 36% of the patterns breaking down ascending triangles also don’t deliver good returns when they do. The average drop is 0.31% in 9 days with about half of the breakouts (44%) being profitable. These results aren’t great, but selecting the right conditions can make trading ascending triangles better.
Improve Your Trades
Short breakouts from ascending triangles work better in falling markets which is clear from the results that were achieved in 2000, 2002 and 2008. The best short trades occur at market turning points. The market and the stock should be in an up trend or consolidating, with the sector consolidating or falling for the best results when trading ascending triangles short.
Avoid ascending triangle trades that break down at the start of the pattern, but it is ok to let the trade go all the way to the point of the ascending triangle before breaking out. Another key to picking successful short breakouts from ascending triangles is to look for a turning point up from the lower boundary that fails to reach the upper boundary and then falls away.
Ensure that the volume is supportive of the breakout, i.e. volume as the stock falls is greater than volume as the stock rises.
Ascending Triangles Can Be Profitable
Incorporating these simple changes when selecting ascending triangles to trade short, dramatically improves the results. With an average return per trade of 1.07% in 10 days and a hit rate of 52% it is possible for ascending triangles to be traded short successfully.
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.
Tags: ascending triangles, cfd trading, chart patterns, day trading, Finance, Short Trading, Short Trading Ascending Triangles, stock trading, trading ascending triangles, trading cfds, trading chart patterns