Ascending Triangle Patterns - Ultimate Guide for Traders
By Stelian Olar, Updated on: Jul 12 2024.
In this article, we'll explore everything you need to know about ascending triangles - from how to identify them to how to trade them profitably.
But first, let's back up a step.
Charts and technical indicators can seem like hieroglyphics at first glance. Believe me, I've been there too, feeling overwhelmed and unsure of what all those squiggly lines represent. The good news is that the ascending triangle pattern is one of the easier chart patterns to recognize and trade.
Once you understand how to spot an ascending triangle forming, these chart formations can become your new best friend for timing trades. Ascending triangles occur frequently in Forex trading, stock, and cryptocurrency trading and can tip you off to big price moves ahead.
By the end of this article, you'll have a solid understanding of:
- The ascending triangle definition and how to identify it
- The psychology behind why ascending triangle chart pattern form
- How to interpret ascending triangle stocks and anticipate breakouts
- Strategies to profit from trading the ascending triangle
Let's get started demystifying these ascending triangle shapes so you can use them to make smarter trades!
Recognizing chart patterns is a key trading skill, so consider this your crash course on profiting from the ascending triangle bullish outcome.
What Is an Ascending Triangle
An ascending triangle is a chart pattern that forms when price action gets squeezed between two converging trend lines. Specifically, ascending triangles have:
- An upward sloping trendline connecting a series of higher lows (the support level)
- A flat or horizontal trendline connecting swing highs at the same resistance level
As the two trend lines converge, the price action gets narrower and narrower. This visual shape that forms on the chart resembles the outline of a triangle, hence the name – rising triangle.
The triangle formation reflects a market in an upward trend overall. The rising swing lows show increasing demand and buying pressure but, upside momentum is stalling at a fixed resistance level.
Traders watch for an eventual breakout above the horizontal resistance trendline. A decisive break signals that demand has overwhelmed supply and buyers have gained control. This upside breakout from the ascending triangle formation often leads to a continued move higher in price.
Ascending Triangle Formation
Ascending triangles are considered continuation patterns, meaning they occur within an uptrend and signal the trend is likely to resume after a period of consolidation. Here are the key stages of an ascending triangle formation:
Step #1: Prevailing Uptrend
Price is in an overall uptrend before the pattern begins forming.
Step #2 Consolidation
The uptrend pauses and enters a period of consolidation, with price oscillating between an ascending support line and horizontal resistance.
Step #3 Rising Lower Trend line
As the pattern matures, the rising support line and horizontal resistance line converge to form the triangular shape. The decreasing distance between support and resistance reflects decreasing volatility as the market enters the apex of the triangle.
Step #4 Breakout Occurs
An upside breakout occurs with a decisive close above the horizontal resistance level. This breakout from the ascending symmetrical triangle pattern confirms bullish momentum is resuming.
Step #5 Trend Continuation
Post-breakout, previous resistance often flips to become support on pullbacks
So in summary, the ascending continuation triangle represents a continuation of the overall uptrend after a timeout period. Traders anticipate an eventual upside breakout and upside follow-through.
What Does the Ascending Triangle Tell You
The ascending triangle formation reveals quite a bit about the psychology of the market through their unique shape. By understanding what is causing the price action, we can better anticipate future moves.
How Ascending Triangles Show Growing Optimism in the Market
The rising lows of an ascending triangle show there is increasing demand and buying interest.
Buyers are becoming more eager and willing to pay higher prices on pullbacks.
This reflects building bullish sentiment.
The Tug-of-War Between Bullish and Bearish Traders
However, the horizontal resistance level shows sellers remain active up there. They are still willing to sell each rally, preventing the price from pushing above a fixed ceiling while sellers may be anticipating the rising trend is overextended and due for a pullback.
As the ascending triangle Forex pattern squeezes together, both bulls and bears dig in. Eventually the tense tug-of-war will resolve itself with an upside breakout or an ascending triangle breakdown.
Ascending Triangle Breakouts Signal a Release of Market Energy
An upside breakout signals the bulls have overpowered the bears or the buying pressure overwhelmed selling pressure. With resistance shattered, the path higher looks clear and upside momentum is likely to continue.
So in summary, ascending triangles reflect growing optimism being held in check temporarily.
The triangle pattern looks like a coiled spring ready to pop higher upon the slightest catalyst.
Ascending Triangle - Bullish or Bearish Pattern?
Ascending triangles are most often considered bullish patterns since they form within uptrends and act as continuation patterns. The rising lows indicate growing demand and buying pressure which fuels upside breakouts.
However, ascending triangle in downtrend can occasionally form as well, in which case, the pattern would be considered an ascending triangle pattern bearish rather than bullish.
Ascending triangle after Downtrend is Bearish
An ascending triangle from downtrend reflects consolidation before bearish momentum potentially resumes.
The rising lows indicate buyers attempting to support the price and spark a reversal up, but the horizontal resistance reflects persistent selling pressure capping rallies. An eventual downside breakout would confirm sellers remain in control for lower prices confirming the ascending triangle bottom.
Consider the Current Trend with Ascending Triangles
So in summary:
- Ascending triangles in uptrends are bullish, anticipating price breaks to the upside
- Ascending triangles in downtrends are bearish, anticipating downside breakouts
- Traders must consider the prevailing trend to know what type of ascending triangle bullish or bearish they are dealing with
Breakout Direction Confirms Bulls or Bears in Control
The direction of the eventual breakout from the pattern will confirm whether bulls or bears are in control and if is ascending triangle pattern bullish or bearish?
So the ascending triangle pattern can be either bullish or bearish depending on market conditions. Analyzing the current trend is key to decoding the triangle.
Ascending Triangle Pattern - Know the Difference from other Triangle Patterns
There are a few other common triangle patterns that traders should be aware of. While similar in shape, they have different implications than the ascending triangle.
Ascending and Descending Triangle Pattern
The ascending opposite triangle form is the descending triangle, with a flat support line and downward sloping resistance line. Descending triangles are bearish patterns that form within downtrends, unlike the bullish ascending triangle.
Ascending Triangle vs Rising Wedge
If we compare rising wedge vs ascending triangle, wedge patterns also have ascending lows but two rising trend lines that converge. The rising wedge pattern is considered a bearish reversal pattern, while the ascending triangle is a bullish continuation pattern.
Pay Attention to Slope of Trend lines
So in summary, pay close attention to:
- Whether support is flat or rising (or both support and resistance are rising like is in the case of ascending wedge vs ascending triangle)
- Whether resistance is flat or falling
- This indicates if demand or supply is growing
Observing the slopes of the trend lines gives insight into the shifting balance of power between buyers and sellers.
Consider Prevailing Price Trend
Also factor in the overall trend preceding the pattern. This provides context for whether to anticipate upside or downside breaks.
With practice, traders can quickly recognize and differentiate these major triangle patterns and trade them appropriately.
How Reliable is Ascending Triangle Pattern
Statistics show the upside ascending triangle breakout percentage materializes between 63% of the time in ascending triangles. However, traders should still exercise caution when trading triangles as they are not foolproof. There is still a chance of an ascending triangle false breakout, which happens with all types of triangles (symmetrical, ascending and descending).
Around 30-35% of ascending triangles result in false upside breakouts where the price reverses back inside the pattern. This ascending triangle fake out above resistance traps bullish traders entering too early.
How to Trade an Ascending Triangle Pattern
Now that we've covered pattern identification and reliability, let's discuss approaches to trading the ascending triangle continuation pattern:
- Ascending triangle entry: Wait for a breakout above the level of resistance that has formed the ascending triangle pattern. This is the entry signal and indicates a continuation of the uptrend. Place a buy stop order slightly above the resistance level to get long once the breakout happens.
- Stop Loss: The stop loss should be placed below the most recent ascending low that makes up the triangle pattern and can be trailed higher as the trade becomes profitable. This protects capital in case the breakout fails.
- Ascending triangle breakout target: Once the breakout occurs, the minimum price target is calculated by measuring the height of the triangle pattern and projecting that distance above the breakout level. However, price will often extend much farther, so additional targets can be based on other analysis techniques.
Useful Tips for Trading Ascending Triangles
Beyond the basics, here are some outside-the-box tips to potentially improve your ascending triangle candlestick pattern trades:
- Fine-Tune Entries with Candlestick Patterns: Look for bullish candlestick patterns forming near triangle resistance to pinpoint entry signals. For example, a bullish engulfing or piercing pattern can confirm an upside breakout.
- Tweak Trendlines to Avoid False Breaks: Adjust ascending support and resistance lines slightly to account for wicks, which create a buffer zone around the triangle to filter out false breaks.
- Trail Stops Behind Key Levels: Instead of moving stops in a straight line, trail them just below key swing lows or moving averages. This locks in gains while avoiding premature stop-outs.
- Set Alerts for Breakouts: Use price alerts for when the stock price crosses your breakout threshold. Don't miss valid breakout trades because you weren't watching the chart.
- Check Momentum Oscillators: Look for bullish crosses by the RSI or MACD-Histogram right before the upside breakout for added confidence.
In summary, don't just rely on textbook ascending triangle rules. Get creative with combinations of indicators, candlesticks, and stop loss placement to improve trading performance.
The more angles you attack ascending triangles from, the higher your chances of benefiting from these powerful continuation patterns.
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