I have spent a lot of my trading career studying chart patterns.
Early on in my trading career I found that it was possible to trade ascending triangles as they broke out to the upside.
This was a very profitable pattern back in the technology boom with moves of 50% in a week or even 30% in a day quite possible when these patterns broke out.
The Truth About Chart Patterns More recently I have completed a much more in depth study of patterns with a friend who has been able to model chart patterns using a complex computer algorithm.
For the first time we are now able to identify profitable chart patterns and verify their effectiveness.
Most Profitable Long Chart Patterns From an analysis of around 60,000 trades on the Australian Stock Exchange we have found the following results.
On the long side the most profitable patterns to trade are much as you would expect.
Ascending triangles, symmetrical triangles and rectangles can all be traded quite profitably as they break to the upside.
Less well known are the broadening descending patterns and broadening ascending patterns which are also profitable patterns trading long.
The success rate for these patterns sits just above the 50% mark, using a tight stop loss and they return an average of more than 1% per trade in around 10 days.
Strangely our testing has found that an ascending wedge, which is widely regarded as a short pattern, actually performs very well trading long.
Most Profitable Short Chart Patterns Contracts for Difference (CFDs) allow me to trade patterns both long and short.
Trading short the most profitable chart patterns are more limited with the descending triangle and broadening ascending pattern being the stand out performers.
The success rate of these patterns is lower with about 45% of the patterns profitable and an average return per trade of 1% in around 9 days.
Market conditions must be supportive for other patterns to perform well on the short side.
If the market and sector are falling then the symmetrical triangle, ascending triangle and rectangle can also be traded short very successfully with similar results that the other profitable chart patterns deliver in all market conditions.
Descending triangles and broadening ascending patterns typically produce even better results in falling markets.
But Wait There Is More While this is a concise summary of the most profitable patterns that you can trade, I have found that adding other filters when selecting patterns can dramatically improve the profitability.
Early on in my trading career I found that it was possible to trade ascending triangles as they broke out to the upside.
This was a very profitable pattern back in the technology boom with moves of 50% in a week or even 30% in a day quite possible when these patterns broke out.
The Truth About Chart Patterns More recently I have completed a much more in depth study of patterns with a friend who has been able to model chart patterns using a complex computer algorithm.
For the first time we are now able to identify profitable chart patterns and verify their effectiveness.
Most Profitable Long Chart Patterns From an analysis of around 60,000 trades on the Australian Stock Exchange we have found the following results.
On the long side the most profitable patterns to trade are much as you would expect.
Ascending triangles, symmetrical triangles and rectangles can all be traded quite profitably as they break to the upside.
Less well known are the broadening descending patterns and broadening ascending patterns which are also profitable patterns trading long.
The success rate for these patterns sits just above the 50% mark, using a tight stop loss and they return an average of more than 1% per trade in around 10 days.
Strangely our testing has found that an ascending wedge, which is widely regarded as a short pattern, actually performs very well trading long.
Most Profitable Short Chart Patterns Contracts for Difference (CFDs) allow me to trade patterns both long and short.
Trading short the most profitable chart patterns are more limited with the descending triangle and broadening ascending pattern being the stand out performers.
The success rate of these patterns is lower with about 45% of the patterns profitable and an average return per trade of 1% in around 9 days.
Market conditions must be supportive for other patterns to perform well on the short side.
If the market and sector are falling then the symmetrical triangle, ascending triangle and rectangle can also be traded short very successfully with similar results that the other profitable chart patterns deliver in all market conditions.
Descending triangles and broadening ascending patterns typically produce even better results in falling markets.
But Wait There Is More While this is a concise summary of the most profitable patterns that you can trade, I have found that adding other filters when selecting patterns can dramatically improve the profitability.