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, Ok To Trade
Most ascending wedges would be expected to break down but, in fact 68%, break out to the upside making this pattern tradable on the long side. And what is more 48% of these breakouts are profitable and on average the profit per trade is 0.94% over a period of 9 days. The ascending wedge is not the best chart pattern when it breaks to the upside, but applying some filters makes this pattern attractive to trade.
Specific Setups to Improve Profitability
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.
Avoid trading ascending 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 6% of the stock price. Patterns that take longer than 44 days to form also perform poorly.
Avoid ascending wedges where there are two consecutive closes at the same level prior to the breakout. These are often signs of an illiquid stock. The pattern works better if the low is less than or equal to the previous day prior to the breakout. Ensure that the volume is supportive of the breakout, i.e. volume as the stock rises is greater than volume as the stock falls.
Ascending Wedges Can Be Profitable
By following some very specific rules, and these rules do matter, profitability of trading ascending wedges can be improved substantially. With an average return per trade almost doubling to 1.89% in 8 days and a hit rate of 52% ascending wedges can be traded very successfully when the conditions are right.
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 CFDs since 2002 and created the website LearnCFDs.com A Simple Timeless Method for Huge Gains
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