CFD Trading Strategy - Descending Wedges Upside Breakout
Descending wedges have been very popular with traders on the long side and not so often traded when it breaks in the downward direction. A descending wedge is defined by two lines, one on the upper boundary of the price movement which slopes down steeply towards the line on the lower side which also slopes down at less of an angle.
Descending Wedges, Surprise On The Downside
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.
Refine Your Entries
A long breakout from a descending wedge works better in a rising market and sector environment. Ensure the market is in an up trend while the sector and stock, are in a consolidation phase or an up trend prior to the breakout.
A breakout from a descending 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 (2% or less) produces smaller returns, as do patterns that take more than 25 days to form.
Avoid descending wedges where there are two consecutive closes, highs or lows at the same level prior to the breakout. These are often signs of an illiquid stock. Ensure that the volume is supportive of the breakout, i.e. volume as the stock rises is greater than volume as the stock falls.
Descending Wedges Can Be Profitable
You can improve your trading results by using a series of filters that have been outlined here. This select group of descending wedges delivers an average profit of 1.92% in 11 days and is profitable on 57% of the trades. Overall this makes descending wedges attractive to trade, but these filters are important.
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. - 23218
Descending Wedges, Surprise On The Downside
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.
Refine Your Entries
A long breakout from a descending wedge works better in a rising market and sector environment. Ensure the market is in an up trend while the sector and stock, are in a consolidation phase or an up trend prior to the breakout.
A breakout from a descending 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 (2% or less) produces smaller returns, as do patterns that take more than 25 days to form.
Avoid descending wedges where there are two consecutive closes, highs or lows at the same level prior to the breakout. These are often signs of an illiquid stock. Ensure that the volume is supportive of the breakout, i.e. volume as the stock rises is greater than volume as the stock falls.
Descending Wedges Can Be Profitable
You can improve your trading results by using a series of filters that have been outlined here. This select group of descending wedges delivers an average profit of 1.92% in 11 days and is profitable on 57% of the trades. Overall this makes descending wedges attractive to trade, but these filters are important.
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. - 23218
About the Author:
Jeff Cartridge has been trading CFDs since 2002 and created the website LearnCFDs.com A Simple Timeless Method for Huge Gains
posted by X - Men @ 2:54 AM
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