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
The ascending wedge breaks up more than it breaks down with downside breaks only occurring in 32% of the patterns. A downside breakout is profitable 42% of the time delivering an average profit of just 0.02% in 8 days, it is barely profitable. As with other patterns it can be improved with the addition of filters.
Refine Your Entries
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.
A breakout from an ascending wedge can occur anywhere on the way to the point of the pattern; it is not important exactly where the breakout occurs. The best trades occur with patterns that are between 5 and 30 days long.
Ensure that the volume is supportive of the breakout, i.e. volume as the stock falls is greater than volume as the stock rises. Avoid patterns that have two closes the same prior to the breakout as this is often a sign of an illiquid stock. Lower highs or lower lows prior to the breakout produce better results.
Trading Ascending Wedges Can Be 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.
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. - 23309
Ascending Wedges Best Traded Long
The ascending wedge breaks up more than it breaks down with downside breaks only occurring in 32% of the patterns. A downside breakout is profitable 42% of the time delivering an average profit of just 0.02% in 8 days, it is barely profitable. As with other patterns it can be improved with the addition of filters.
Refine Your Entries
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.
A breakout from an ascending wedge can occur anywhere on the way to the point of the pattern; it is not important exactly where the breakout occurs. The best trades occur with patterns that are between 5 and 30 days long.
Ensure that the volume is supportive of the breakout, i.e. volume as the stock falls is greater than volume as the stock rises. Avoid patterns that have two closes the same prior to the breakout as this is often a sign of an illiquid stock. Lower highs or lower lows prior to the breakout produce better results.
Trading Ascending Wedges Can Be 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.
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. - 23309
About the Author:
Jeff Cartridge is a private trader and created the website LearnCFDs.com A Simple Timeless Method for Huge Gains
