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
Most ascending wedges would be expected to break down but in reality just 32%, break out to the downside making this pattern better when traded on the long side. 42% of these breakouts are profitable and on average the profit per trade is a meager 0.02% over a period of 8 days. The ascending wedge is certainly not one of the best chart patterns when it breaks to the downside, but applying some filters makes this pattern more attractive to trade.
Improve Your Trades
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.
If volume supports an ascending wedge breakout then the profitability of the trades improves. For volume to support the breakout, volume when the stock is going down should be greater than volume when the stock is going up. If the closing price is the same as the previous day prior to the breakout it is best to avoid these patterns as the stock may be illiquid. If the lows are getting lower and the highs are also falling then you will be more profitable.
Ascending Wedges Profitable Sometimes
Following a series of rules to determine which ascending wedge to trade can improve results dramatically. To do this however it is necessary to throw away over 1200 trades reducing the number of trades from 1275 down to just 74. By applying these filters ascending wedges are profitable on 48% of the trades and return an average of 1.46% per trade in 10 days. This is a profitable pattern to trade, if the conditions are right.
Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 - 2008. - 23211
Ascending Wedges Best Traded Long
Most ascending wedges would be expected to break down but in reality just 32%, break out to the downside making this pattern better when traded on the long side. 42% of these breakouts are profitable and on average the profit per trade is a meager 0.02% over a period of 8 days. The ascending wedge is certainly not one of the best chart patterns when it breaks to the downside, but applying some filters makes this pattern more attractive to trade.
Improve Your Trades
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.
If volume supports an ascending wedge breakout then the profitability of the trades improves. For volume to support the breakout, volume when the stock is going down should be greater than volume when the stock is going up. If the closing price is the same as the previous day prior to the breakout it is best to avoid these patterns as the stock may be illiquid. If the lows are getting lower and the highs are also falling then you will be more profitable.
Ascending Wedges Profitable Sometimes
Following a series of rules to determine which ascending wedge to trade can improve results dramatically. To do this however it is necessary to throw away over 1200 trades reducing the number of trades from 1275 down to just 74. By applying these filters ascending wedges are profitable on 48% of the trades and return an average of 1.46% per trade in 10 days. This is a profitable pattern to trade, if the conditions are right.
Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 - 2008. - 23211
About the Author:
Jeff Cartridge has been trading chart patterns since 1998 and created the website LearnCFDs.com Discover Chart Pattern Secrets
posted by X - Men @ 2:20 AM
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