Ascending triangle pattern and trading chart
What is an ascending triangle pattern?
An ascending triangle is a bullish technical chart pattern that consists of a series of higher lows (forming the ascending trendline) and a flat, upper resistance level.
The pattern is easy to identify, and it is made up of only two trendlines. Some traders will use the pattern on its own to generate an entry signal (i.e., the breakout), while others will use technical indicators for further confirmation (e.g., momentum indicator).
Is an ascending triangle bullish or bearish?
The ascending triangle is generally a bullish chart pattern. It indicates that bulls are regaining the upper hand and are pushing the price higher. They will aim for a breakout to the topside as the wedge narrows down.
The ascending triangle is considered to be a continuation pattern. Continuation patterns occur within an uptrend or downtrend and signal that the price will continue to move in the same direction after the breakout occurs. Ascending patterns should therefore be anticipated during uptrends, and a breakout would signal a continuation of the rally.
How to identify an ascending triangle pattern
An ascending triangle consists of:
- An ascending trendline (support): As the price moves higher and posts higher lows, it will create a rising trendline.
- A horizontal trendline (resistance): This line represents a key level of resistance.
For an ascending triangle to form, the instrument should be within an existing uptrend. The triangle signals a temporary pause in the rally, i.e., the consolidation phase. However, as bulls regain control, the wedge will narrow and the breakout of the horizontal trendline will signal a continuation of the uptrend.
How to trade an ascending triangle pattern
The first step to trade an ascending triangle is to identify it, as outlined in the previous section. The pattern should be well-defined with at least two or more touches on the ascending trendline and two or more touches on the horizontal resistance line.
Since ascending triangles are continuation patterns, you will also want to ensure that the instrument is currently in an existing trend.
The entry signal will occur with the breakout above the horizontal resistance line. While some traders will act on the breakout alone, others prefer to involve technical indicators that can give an indication of the quality of the signal. False breakouts can happen, and using additional tools may help traders avoid bad signals.
Traders will generally place a stop-loss order just below the ascending trendline, while the take-profit level will be based on the height of the triangle pattern.
Advantages of ascending triangles
- Easy to recognise: Ascending triangles are easy to spot, even for less experienced traders.
- Simple to define entry/exit points: The entry signal is clear, with traders anticipating a breakout above the horizontal trendline resistance. This makes it easier to define the stop-loss and take-profit levels.
- Continuation pattern: Ascending triangles are generally bullish patterns, which means traders will be looking for a continuation of an existing uptrend.
- Different timeframes: Ascending triangles appear on all possible timeframes, from minutes charts to monthly charts, providing opportunities for both short- and long-term traders.
- Compatibility with other tools: Since this is a simple chart pattern, it can easily be used with other indicators for additional confirmation.
Disadvantages of ascending triangles
- False breakout: As with any other chart pattern, ascending triangles can produce false signals in the form of a false breakout. A breakout might initially appear as valid, but the price could quickly reverse, triggering the trader’s stop-loss level or forcing them to liquidate their position early.
- Number of signals: Short-term charts can see a larger number of ascending triangles appear, with a worse quality of signals.
- Lack of trend: An instrument should be trending rather than consolidating.
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FAQ
What is an ascending triangle?
An ascending triangle is a bullish technical chart pattern that consists of a series of higher lows (forming the ascending trendline) and a flat, upper resistance level.
What does an ascending triangle indicate?
It indicates that buyers are regaining control and are pushing prices higher. The breakout above the horizontal resistance level is seen as a sign that the uptrend will continue.
How do I trade an ascending triangle pattern?
Wait for a breakout above the horizontal resistance line and consider a long position once it has been breached. The stop loss is generally placed below the ascending trendline, while the take profit target is set based on the pattern's height.
Where to place the take profit level when trading an ascending triangle pattern?
The take-profit level is often estimated by measuring the vertical distance between the ascending support and resistance lines and adding it to the breakout point.
Can ascending triangles be found on various timeframes?
Yes, ascending triangles appear in various timeframes, from minutes to weekly charts.
Can ascending triangles fail or result in false breakouts?
Yes, ascending triangles can lead to false breakouts, which is why using a stop-loss order is crucial.
