CFD Trading Strategy – Ascending Wedges Upside Breakout
Ascending wedges have been very popular with traders on the short side, but not so often traded when it breaks in the upward direction. An ascending wedge is defined by two lines, one on the lower boundary of the price movement which slopes up steeply towards the line on the upper side which also slopes up at a less of an angle.
Ascending Wedges, Surprise On The Upside
The breakout of the ascending wedge would be expected to be down and conventional wisdom would have you trading this pattern short. In reality 68% of the patterns break to the upside, so a break down is relatively rare. The upside breakout of ascending wedges can deliver positive returns with 48% of the patterns being profitable. The average return for the long trades is 0.94% in 9 days. This is a respectable performance on the long side.
Improve Your Trades
A break to the upside works better in strange market conditions. By using filters that require the market to be in a consolidation or an up trend you can improve the results. The stock and the sector should be in a down trend or a consolidation for the best results. Profitable entries tend to occur when there is a pull back in the share and sector in a market up trend.
A breakout from an ascending wedge ideally occurs before the pattern gets 80% of the way to the point of the pattern. Avoid patterns that breakout late. In a similar way patterns with a very low height relative to the share price (6% or less) produces smaller returns along with very long patterns (44 days or more).
Illiquid stock can sometimes be identified by two identical closes and if this is the case you are better to avoid these trades. Prior to the breakout a low less than the previous day is beneficial. 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 up should be greater than volume when the stock is going down.
Trading Ascending Wedges Can Be Profitable
Following a series of rules to determine which ascending wedge to trade can improve results dramatically. These filters do make a significant difference. By applying these filters ascending wedges are profitable on 52% of the trades and return an average of 1.89% per trade in 8 days. This is a profitable pattern to trade.
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.
Jeff Cartridge has been trading chart patterns since 1998 and created the website LearnCFDs.com Discover Patterns of Success
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