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Ascending Triangle Pattern

Ascending Triangle Pattern – How to Find and Trade It

The ascending triangle is considered a bullish chart formation indicating a trend extension after a period of consolidation. 

One of the biggest advantages of the ascending triangle pattern is that it is easy to identify on the chart, in addition to being a reliable continuation pattern. Still, other technical indicators should be consulted as the ascending triangle pattern, as practically every other technical trading tool, is susceptible to false breakouts that result in losses.

What Is the Ascending Triangle Pattern?

The ascending triangle is frequently referred to as a continuation pattern because the price breakout typically occurs in the same direction as the overall trend, which was in place before the triangle’s formation.

The ascending triangle suggests that bulls are dominating the market as the price of the security continues to record higher lows. The pattern is considered active once the price breaks out of the ascending triangle, following the direction of the ongoing trend. Ultimately, it is completed when the price hits the measured take-profit level.

Source: DailyFX

The pattern represents the opposite of a descending triangle. 

When looking at a chart, the ascending triangle forms when the security’s price movements allow for a horizontal line to be plotted along the swing highs while a rising trendline connects the swing lows. These two lines create a triangle, from which the price will eventually break out. The breakout can occur either way, although it is usually in the direction of the overall trend. 

When a breakout happens, traders see this as a signal to buy/sell the underlying asset, especially if the volume behind the move is significant. Higher-than-usual volume tends to confirm the breakout, which normally suggests increased interest in the asset

How to Recognize the Ascending Triangle

The ascending triangle is formed by a rising lower trendline and a flat upper trendline that serves as resistance. For those who know what to look for, this chart pattern is relatively easy to identify on price charts. 

First, the overall market must be in an uptrend for the ascending triangle to appear. This is particularly important as it tells traders they shouldn’t trade the pattern whenever it emerges. 

Secondly, the pattern starts to form when the market enters a consolidation phase. During that period, a rising trendline can be drawn to connect the price lows. This trendline suggests that bulls are steadily driving the security’s price up, providing strong support for further bullish sentiment. 

Meanwhile, the upper trendline, which acts as resistance, can be drawn to connect swing highs. Most of the time, the security price will touch and bounce off this trendline until a breakout finally occurs.

Once there is a breakout above the upper trendline (the resistance), that level then starts acting as support. 

Traders should beware of false breakouts. During false breakouts or fakeouts, the security’s price will fall back into the triangle. This is why more experienced traders consult volume levels to confirm whether the “smart money” dynamics also back the breakout.

Ascending Triangle Technical Analysis

As indicated earlier, the ascending triangle is a continuation pattern, signaling that the security’s price will likely continue its trajectory once the pattern takes final shape. It is characterized by two trendlines – a flat trendline located along the top of the pattern that serves as a resistance and a bottom trendline formed by a series of higher lows acting as a support level. 

In most cases, the ascending triangle pattern suggests that bears are growing weaker each time they attempt to drive the prices down. 

The formation appears as the price bounces back and forth between the two trendlines. As the price appreciates, it ultimately hits resistance, resulting in a price drop as bears sell the security. However, even though the price can fail to break above the resistance level multiple times, it doesn’t suggest that sellers are gaining momentum. 

It actually indicates the opposite. At some point, the price eventually breaks through the resistance and continues following the uptrend. While the ascending triangle mainly emerges during a broad uptrend, it can also appear during a downtrend. In this case, it serves as an indicator of a potential market reversal to the upside. 

Ascending Triangle vs. Descending Triangle

Ascending and descending triangles are two continuation patterns. The key difference between them is in the way they are formed. 

The descending triangle is characterized by a horizontal lower trendline and a descending upper trendline. In contrast, the ascending triangle is formed by a horizontal trendline that connects the swing highs and an ascending trendline plotted along the swing lows. 

The ascending triangle is typically formed during an overall market uptrend and indicates its continuation, whereas the descending triangle mainly appears during a downtrend and signals the continuation of that downtrend. 

The ascending and descending triangles can also appear during a market downtrend and uptrend, respectively. In that case, the patterns signal a possible market reversal. 

A descending triangle essentially represents an inverted version of an ascending triangle, and as such, it is usually considered a breakdown pattern. The breakdown happens when the security’s price pierces through the lower horizontal trendline and continues following the overall market downtrend. When that happens, the lower trendline, which previously served as support, becomes resistance. 

Trading the Chart Pattern

Trading the ascending triangle pattern is very similar to trading the descending chart formation. In both cases, the trader determines support and resistance levels as the price action consolidates after a sharp move in one direction.

Many traders opt to trade the ascending triangle pattern by waiting for the breakout. This can be done by placing a buy order that is automatically triggered when the price leaves the triangle. However, this method is less reliable as a choppy trading period can yield multiple fakeouts. 

This is why more experienced traders prefer to trade when the price re-tests the broken triangle. Essentially, the trader will wait for a breakout and then for the price action to return to the breakout point. They will then buy the asset, hoping that the bulls are still in the dominant position.

In this case, the stop loss is placed below the resistance with any move back to the triangle territory, signaling a fakeout. On the other hand, the take-profit level is calculated by measuring the distance between the high and the low of the ascending triangle.

When trading the ascending triangle chart formation, it is important not to “jump the gun” and enter the trade before the breakout occurs. Many beginner traders get too excited and want to trade the ascending triangle formation before it has actually occurred. 

Ascending Triangle vs. Rising Wedge

Less experienced traders often confuse ascending triangles with the rising wedge – a bearish continuation pattern that emerges following a rising correction. 

Unlike the rising wedge pattern, the ascending triangle signals a potential uptrend. 

On the chart, the rising wedge is plotted by two trend lines, one of which connects the highs, whereas the other connects the lows. The two trend lines form an angle. 

The rising wedge pattern appears when the price rises with pivot highs and lows converging toward a single point called the apex. If the pattern occurs during a period of declining volume, it can indicate a possible trend reversal and a continuation of the downtrend. 

Conclusion

Both ascending and descending triangle patterns are popular trading strategies in a trending market. Unlike the latter, which typically occurs during periods of increased bearish sentiment, the former appears as bulls take a pause after successfully pushing the price action higher.

The pause, or the consolidation phase, is shaped by two lines – the horizontal line that connects the highs and the ascending trend line that connects the higher lows, which signals bull dominance. For more reliable signals, breakouts should be supported by higher-than-normal volume. In most cases, the breakout will continue the uptrend.