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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, Unexpected Returns

The breakout of the ascending wedge would be expected to be down and conventional wisdom would have you trading this pattern short. In reality 68% of the patterns break to the upside, so a break down is relatively rare. The upside breakout of ascending wedges can deliver positive returns with 48% of the patterns being profitable. The average return for the long trades is 0.94% in 9 days. This is a respectable performance on the long side.

Refine Your Entries

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.

A breakout from an ascending 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 (6% or less) produces smaller returns along with very long patterns (44 days or more).

Ascending wedges with two closes at the same price should be avoided, as this usually occurs in an illiquid stock. Look for the low before the breakout to be below the previous day’s low and the results also improve. 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 Ascending 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 ascending wedges delivers an average profit of 1.89% in 8 days and is profitable on 52% of the trades. Overall this makes ascending wedges attractive to trade.

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 is a private trader and created the website LearnCFDs.com Discover Patterns of Success