Tips for Trading Ascending Wedges Short with CFDs
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 Profitable, No Surprise
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
Trading ascending wedges when the stock and the market are in an up trend or consolidating improves your trading results. The sector should be falling or in consolidation to make the best profits.
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
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. - 23208
Ascending Wedges Profitable, No Surprise
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
Trading ascending wedges when the stock and the market are in an up trend or consolidating improves your trading results. The sector should be falling or in consolidation to make the best profits.
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
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. - 23208
About the Author:
Jeff Cartridge has been trading CFDs since 2002 and created the website LearnCFDs.com Discover Patterns of Success
posted by X - Men @ 1:12 PM
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