Tips for Trading Descending Wedges Long with CFDs
The descending wedge is usually traded on the long side entering the trade as the stock breaks out to the upside. This is how you would expect to trade this pattern as the text books will tell you, but baseline results are quite poor. The pattern forms when the two boundary lines that contain the price movement converge to a point. The bottom line slopes down, and the top line slopes down even steeper to meet the bottom line.
Descending Wedges, Ok To Trade
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.
Avoid trading descending 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 2% of the stock price and patterns that form over 25 days or more.
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.
Trading 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. - 23200
Descending Wedges, Ok To Trade
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.
Avoid trading descending 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 2% of the stock price and patterns that form over 25 days or more.
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.
Trading 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. - 23200
About the Author:
Jeff Cartridge is a private trader and created the website LearnCFDs.com Discover Patterns of Success
posted by X - Men @ 2:56 AM
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