Tips for Trading Ascending Wedges Short with CFDs
Ascending wedges traditionally have been popular with traders on the short side and are not so often traded when it breaks in the upward direction. The data we have collected suggests this is not the best approach. 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 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.
Specific Setups to Improve Profitability
Surprisingly short breakouts work well in rising markets so the market, as well as the stock, should be rising or consolidating. The best results are achieved trading ascending wedges when the sector is falling or consolidating. So if the trend of the sector turns down, this sets up the best short trades.
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, Selectively Profitable
Incorporating these filters when selecting ascending wedges to trade short, dramatically improves the results. It also significantly reduces the number of trades to 74 from 1275, before the filters are applied. With an average return per trade of 1.46% in 10 days and a hit rate of 48% ascending wedges can be profitable when traded short, but selecting the right patterns can be challenging.
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
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.
Specific Setups to Improve Profitability
Surprisingly short breakouts work well in rising markets so the market, as well as the stock, should be rising or consolidating. The best results are achieved trading ascending wedges when the sector is falling or consolidating. So if the trend of the sector turns down, this sets up the best short trades.
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, Selectively Profitable
Incorporating these filters when selecting ascending wedges to trade short, dramatically improves the results. It also significantly reduces the number of trades to 74 from 1275, before the filters are applied. With an average return per trade of 1.46% in 10 days and a hit rate of 48% ascending wedges can be profitable when traded short, but selecting the right patterns can be challenging.
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 Ways to Make Serious Money With A Small Investment
posted by X - Men @ 10:36 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home