A Trader’s Guide to the Ascending Triangle

27 Mar A Trader’s Guide to the Ascending Triangle

This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. We research technical analysis patterns so you know exactly what works well for your favorite markets.

You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. Have you ever seen a stock exhibiting normal trading behavior and then all of a sudden the stock price drastically drops out of nowhere? This type of price action could be related to the announcement of a shelf offering or the execution of an “at-the-market” sale from… This helps in the scenario where the stock rolls over and breaches the uptrend line, but does not break the low of the breakout candle. You will see these shakeouts occur right before a stock really takes off. The first option is to purchase on the highest high after three or more tops.

Traders can identify a descending triangle by looking for the lower trendline that connects the swing lows and the upper trendline that connects the swing highs. A breakdown occurs when the price breaks below the horizontal trendline, confirming the bearish sentiment. Ascending and Descending Triangles are popular chart patterns because of their high follow-through rate and reliability compared to other patterns. Ascending Triangles typically signal a bullish continuation pattern, where the price is likely to break out above the resistance level and continue to rise.

Both price and volume action looks great and then the stock begins to stall. The next thing you want to see in a breakout is for volume to accelerate on the move higher. This does not mean the volume on https://g-markets.net/ the breakout has to be the highest over the last 20 hours or something. Remember, with technical analysis, if you don’t keep it simple, you will begin to see things that aren’t even there on the chart.

1. If the stock is able to break out, you can place your stop below the low of the candlestick.
2. The ascending triangle trading strategy is an easy method to capture breakouts inside a trend.
3. I remember how I would read a book on a specific chart pattern and then when I would go in the market, I could never find an exact match.
4. What you will see is a series of price swing highs that end around the same level, with each swing low ending a bit higher than the one preceding it.

Its base ascending trendline acts as a rising support line while its horizontal resistance initially inhibits movement above it but eventually gives way as a breakout occurs. The ascending triangle is considered a trend continuation pattern, regardless of the trend (uptrend or downtrend) where it forms. The best way to trade the ascending triangle pattern is to trade the breakout of the resistance level or the breakdown of the support level. There are three potential triangle variations that can develop as price action carves out a holding pattern, namely ascending, descending, and symmetrical triangles. Technicians see a breakout, or a failure, of a triangular pattern, especially on heavy volume, as being potent bullish or bearish signals of a resumption, or reversal, of the prior trend. The ascending triangle is a good chart pattern as long as it develops within an uptrend.

Thus, if it appears during an uptrend or a downtrend, it denotes a trend reversal, respectively. Once you have identified this chart pattern in the stocks, you can trade accordingly as discussed above. The majority of breakouts of either direction are observed in the second half of the pattern formation distance. WallStreetZen does not provide financial advice and does not issue recommendations or offers to buy stock or sell any security.

What Is a Triangle Chart Pattern?

Both of these triangles are continuation patterns, except they look differently. The descending triangle has a horizontal lower line, while the upper trend line is descending. This is the opposite of the ascending triangle which has a rising lower trend line and a horizontal upper trend line. The expected price movement of the breakout is equal to the price difference at the widest part of the ascending triangle pattern. You can measure the distance between the resistance area and the lowest low at the start of the pattern and add that to the resistance area to calculate a profit target for the trade. A bullish breakout above the resistance area signals the completion of an ascending triangle pattern.

Support

When distilled down to their essential elements, most patterns and concepts are straightforward and easy to understand, like ascending triangle patterns. The former happens when the preceding trend is an uptrend, while the latter happens when the preceding trend is a downtrend. While breakout can happen in either direction, a breakout above the resistance level of the triangle is more likely in an uptrend, which requires taking a long position. For the purpose of trading, traders can enter when the price breaks out. Buy if the breakout happens to upside, or sell if it happens to the downside.

Descending Triangles

Information is provided ‘as-is’ and solely for informational purposes and is not advice. WallStreetZen does not bear any responsibility for any losses or damage that may occur as a result of reliance on this data. We can place entry orders above the slope of the lower highs and below the slope of the higher lows of the symmetrical triangle. Instead of a quantified backtest with defined trading rules, we rely on data from Thomas Bulkowski’s book from the late 90s called The Encyclopedia of Chart Patterns. His book is not based on strict quantified rules or data driven backtests, but rather on visual confirmation.

What Are Support and Resistance Levels?

The other key piece is the clear resistance level with a series of highs occurring at or near the same price. [1] You don’t want to have one or two peaks, this my friend is just a swing high or double top. I wish you to be healthy and reach all your goals in trading and not only!

Named because they look like triangles, these patterns connect the beginning of the upper trendline to the beginning of the lower come. The upper line connects the highs while the lower line connects the lows in that security. Traders should watch for a volume spike and at least two closes beyond the trendline to confirm the break is valid and not a head fake. Symmetrical triangles tend to be continuation break patterns, which means they tend to break in the direction of the initial move before the triangle forms. So if an uptrend precedes a symmetrical triangle, traders would expect the price to break to the upside. Ascending triangle patterns are generally reliable indicators of a bullish trend, especially when formed in an ongoing uptrend and confirmed with high trading volume.

How much does trading cost?

So, in a downtrend, the resistance level has a bigger chance to hold while the support level gets broken. When trading the ascending triangle, traders need to identify the uptrend and this can be seen in the USD/CAD chart below. Thereafter, the ascending triangle appears as the forex candlesticks start to consolidate.

This pattern indicates that buyers are more aggressive than sellers as price continues to make higher lows. The pattern completes itself when price breaks out of the triangle in the direction of the overall trend. Traders generally enter a position on a security when its price breaks above or below the boundaries of an ascending triangle. Traders often protect their positions by placing a stop loss outside the opposite side of the pattern.

Ascending and descending triangles are two distinct chart patterns that traders use in technical analysis to identify potential trading opportunities. These patterns can provide valuable information about the future price movements of an asset, and thus are ascending triangle pattern popular among traders. When comparing ascending and descending triangles, there are several similarities and differences to consider. Both patterns are considered continuation patterns and are formed by a series of higher lows or lower highs, respectively.

The subsequent fall in price is shorter than the previous fall and this manifests the series of higher lows. As price rallies, it finds resistance and begins to erase some of its gains. Jesse has worked in the finance industry for over 15 years, including a tenure as a trader and product manager responsible for a flagship suite of multi-billion-dollar funds. In this example, the height of the widest portion of the triangle is roughly $20 ($280 less $260). The $20 provides a rough approximation of how much further the price could fall. See our Terms of Service and Customer Contract and Market Data Disclaimers for additional disclaimers.

The ascending triangle is formed in an uptrend and indicates the continuation of the uptrend. The descending triangle is formed in the downtrend and indicates the continuation of the downtrend. There are certain factors that one should consider when trading with the descending and ascending triangle pattern.