Descending Wedges - Long CFD Trading Strategy
The descending wedge is usually traded on the long side entering the trade as the stock breaks out to the upside. This is how you would expect to trade this pattern as the text books will tell you, but baseline results are quite poor. The pattern forms when the two boundary lines that contain the price movement converge to a point. The bottom line slopes down, and the top line slopes down even steeper to meet the bottom line.
Descending Wedges, Unexpected Returns
Most descending wedges would be expected to break up and they do. In fact 61%, break out to the upside making this pattern predictable to trade on the long side even if the results are not so strong. Only 37% of these breakouts are profitable and on average the profit per trade is 0.12% over a period of 7 days. The descending wedge is not the best chart pattern when it breaks to the upside, but applying some filters makes this pattern much more attractive to trade.
Improve Your Trades
A break to the upside works better in a rising market environment. By using filters that require the market to be in an up trend and the stock and the sector to be in a consolidation or an up trend you can improve the results substantially.
Avoid trading descending wedge patterns that breakout late, in the last 20% of the pattern. Likewise avoid very shallow patterns where the height of the pattern is less than 2% of the stock price and patterns that form over 25 days or more.
Descending wedges with two highs, closes or lows at the same price should be avoided, as this usually occurs in an illiquid stock. If the volume supports the breakout the results are better. Supportive volume means the volume on the way up is higher than the volume on the way down.
Descending Wedges Can Be Profitable
Following a series of rules to determine which descending wedge to trade can improve results dramatically. By applying these filters descending wedges are profitable on 57% of the trades and return an average of 1.92% per trade in 11 days. This is a profitable pattern to trade, but sensitive to the right conditions being available.
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. - 23196
Descending Wedges, Unexpected Returns
Most descending wedges would be expected to break up and they do. In fact 61%, break out to the upside making this pattern predictable to trade on the long side even if the results are not so strong. Only 37% of these breakouts are profitable and on average the profit per trade is 0.12% over a period of 7 days. The descending wedge is not the best chart pattern when it breaks to the upside, but applying some filters makes this pattern much more attractive to trade.
Improve Your Trades
A break to the upside works better in a rising market environment. By using filters that require the market to be in an up trend and the stock and the sector to be in a consolidation or an up trend you can improve the results substantially.
Avoid trading descending wedge patterns that breakout late, in the last 20% of the pattern. Likewise avoid very shallow patterns where the height of the pattern is less than 2% of the stock price and patterns that form over 25 days or more.
Descending wedges with two highs, closes or lows at the same price should be avoided, as this usually occurs in an illiquid stock. If the volume supports the breakout the results are better. Supportive volume means the volume on the way up is higher than the volume on the way down.
Descending Wedges Can Be Profitable
Following a series of rules to determine which descending wedge to trade can improve results dramatically. By applying these filters descending wedges are profitable on 57% of the trades and return an average of 1.92% per trade in 11 days. This is a profitable pattern to trade, but sensitive to the right conditions being available.
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. - 23196
About the Author:
Jeff Cartridge is a private trader and created the website LearnCFDs.com Discover Patterns of Success
posted by X - Men @ 4:14 AM
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