Tips for Trading Descending Wedges Long with CFDs
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, Unexpected Returns
The breakout of the descending wedge would be expected to be up and in reality this is the case with 61% of the patterns breaking to the upside. The upside breakout of descending wedges is however not that profitable with just 37% of the patterns being profitable. The average return for the long trades is 0.12% in 7 days. So it is not the best pattern to trade long, but could be profitable in the right conditions.
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.
Descending wedges that breakout late in the pattern, produce inferior results. A breakout is better if it occurs before the pattern gets 80% of the way to the point of the pattern. Shallow patterns are best avoided, where the pattern height is less than 2% when compared to the stock price. Also watch out for patterns that take longer than 25 days to form, these produce inferior results.
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 Deliver Good Profits
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. - 23223
Descending Wedges, Unexpected Returns
The breakout of the descending wedge would be expected to be up and in reality this is the case with 61% of the patterns breaking to the upside. The upside breakout of descending wedges is however not that profitable with just 37% of the patterns being profitable. The average return for the long trades is 0.12% in 7 days. So it is not the best pattern to trade long, but could be profitable in the right conditions.
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.
Descending wedges that breakout late in the pattern, produce inferior results. A breakout is better if it occurs before the pattern gets 80% of the way to the point of the pattern. Shallow patterns are best avoided, where the pattern height is less than 2% when compared to the stock price. Also watch out for patterns that take longer than 25 days to form, these produce inferior results.
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 Deliver Good Profits
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. - 23223
About the Author:
Jeff Cartridge is a private trader and created the website LearnCFDs.com Discover Chart Pattern Secrets
posted by X - Men @ 9:35 AM
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