CFD Trading Strategy - Ascending Wedges Downside Breakout
Traditional thinking suggests that the ascending wedge is most profitable when traded short. In reality this conclusion is not supported by the evidence. An ascending wedge is formed when the price action is contained within two lines. Both the bottom line and the top line slope up, but the bottom line has a steeper slope meeting the top line.
Ascending Wedges Best Traded Long
Ascending wedges are one of the least predictable patterns that are available to trade short. With just 32% of the patterns breaking down, ascending wedges struggle to deliver good returns when they do. The average gain is 0.02% in 8 days with less than half of the breakouts (42%) being profitable. These results are marginal and barely profitable, but selecting the right conditions can make trading ascending wedges attractive.
Specific Setups to Improve Profitability
A break to the downside works better in a rising market, with the sector falling. By using filters that require the market and stock to be in a consolidation or an up trend you can improve the results. The sector should also be in a consolidation or a down trend for the best results.
Breakouts can occur anywhere along the length of the ascending wedge pattern. The best pattern length is between 5 and 30 days, so very short term patterns and very long term patterns are best avoided.
Ensure that the volume is supportive of the breakout, i.e. volume as the stock falls is greater than volume as the stock rises. Avoid patterns that have two closes the same prior to the breakout as this is often a sign of an illiquid stock. Lower highs or lower lows prior to the breakout produce better results.
Ascending Wedges Profitable Sometimes
You can improve your trading results by using a series of filters that have been outlined here. These filters are harsh, significantly reducing the number of trades to get good results. (1275 trades are reduced to just 74). This select group of ascending wedges delivers an average profit of 1.46% in 10 days and is profitable on 48% of the trades. Overall this makes ascending wedges possible to trade short.
Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 - 2008. - 23217
Ascending Wedges Best Traded Long
Ascending wedges are one of the least predictable patterns that are available to trade short. With just 32% of the patterns breaking down, ascending wedges struggle to deliver good returns when they do. The average gain is 0.02% in 8 days with less than half of the breakouts (42%) being profitable. These results are marginal and barely profitable, but selecting the right conditions can make trading ascending wedges attractive.
Specific Setups to Improve Profitability
A break to the downside works better in a rising market, with the sector falling. By using filters that require the market and stock to be in a consolidation or an up trend you can improve the results. The sector should also be in a consolidation or a down trend for the best results.
Breakouts can occur anywhere along the length of the ascending wedge pattern. The best pattern length is between 5 and 30 days, so very short term patterns and very long term patterns are best avoided.
Ensure that the volume is supportive of the breakout, i.e. volume as the stock falls is greater than volume as the stock rises. Avoid patterns that have two closes the same prior to the breakout as this is often a sign of an illiquid stock. Lower highs or lower lows prior to the breakout produce better results.
Ascending Wedges Profitable Sometimes
You can improve your trading results by using a series of filters that have been outlined here. These filters are harsh, significantly reducing the number of trades to get good results. (1275 trades are reduced to just 74). This select group of ascending wedges delivers an average profit of 1.46% in 10 days and is profitable on 48% of the trades. Overall this makes ascending wedges possible to trade short.
Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 - 2008. - 23217
About the Author:
Jeff Cartridge is a private trader and created the website LearnCFDs.com A Simple Timeless Method for Huge Gains