GavaldaFX Forex Blog

Ascending wedges traditionally have been popular with traders on the short side and are not so often traded when it breaks in the upward direction. The data we have collected suggests this is not the best approach. 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 Best Traded Long

Ascending wedges are one of the least predictable patterns that are available to trade short. With just 32% of the patterns breaking down, ascending wedges struggle to deliver good returns when they do. The average gain is 0.02% in 8 days with less than half of the breakouts (42%) being profitable. These results are marginal and barely profitable, but selecting the right conditions can make trading ascending wedges attractive.

Improve Your Trades

Trading ascending wedges when the stock and the market are in an up trend or consolidating improves your trading results. The sector should be falling or in consolidation to make the best profits.

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.

If volume supports an ascending wedge breakout then the profitability of the trades improves. For volume to support the breakout, volume when the stock is going down should be greater than volume when the stock is going up. If the closing price is the same as the previous day prior to the breakout it is best to avoid these patterns as the stock may be illiquid. If the lows are getting lower and the highs are also falling then you will be more profitable.

Ascending Wedges Profitable Sometimes

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.

Jeff Cartridge has been trading CFDs since 2002 and created the website LearnCFDs.com A Simple Timeless Method for Huge Gains