Ascending Triangle Pattern - Meaning, Features

The ascending triangle is a bullish continuation pattern and is characterized by a rising lower trendline and a flat upper trend line that acts as a support. Ascending triangle pattern indicates that buyers are more aggressive than sellers as price continues to make higher lows. The purpose of the ascending triangle pattern is to assist traders in identifying potential bullish breakouts in the price of a stock. This pattern is formed when the price forms a series of higher lows, and the upper boundary of the pattern stays flat.

What is an Ascending Triangle Pattern?

An ascending triangle is a bullish continuation chart pattern that forms when there is a strong upward trend in the price of an asset. It is characterized by a series of higher lows and a horizontal resistance area. Traders often look for ascending triangles as potential signals for future price breakouts. Ascending triangles are considered a continuation pattern, as the price will typically break out of the triangle in the price direction prevailing before the triangle, although this won't always occur. A breakout in any direction is noteworthy. An ascending triangle pattern often forms when buyers gain strength, pushing prices closer to the resistance level.

Key Features of the Ascending Triangle Pattern

The main features of this pattern are:

Resistance Area

The resistance area is a horizontal line that connects the swing highs in the ascending triangle. It represents a price level where selling pressure has historically been strong enough to prevent the price from moving higher. Traders closely monitor this level to gauge the potential breakout.

Ascending Lows

The ascending lows form an ascending trendline connecting the higher swing lows in the pattern. This trendline shows that buyers are stepping in at higher price levels, indicating increased demand and potential upward momentum.

Breakout

The breakout occurs when the price of the asset breaks above the horizontal resistance line of the ascending triangle. It is typically accompanied by increased volume, confirming the strength of the breakout and signalling a potential bullish move. Once the breakout above the horizontal line is a fact, it is assumed that the previous resistance level will take over the role of the support level. It is not uncommon to see a retest of the earlier resistance level after the initial breakout.

Here is the example of ascending triangle "If a stock has resistance at ₹100 and forms higher lows at ₹90, ₹92, and ₹95, it's an ascending triangle."

How to Identify an Ascending Triangle Pattern?

Step 1: Identify the Pattern Formation

To find an ascending triangle pattern, look for a stock that had a strong uptrend and is now trading sideways. A horizontal area of resistance should be clearly visible in the chart, while drawing a trendline across the stock’s lows should yield an ascending line.

Step 2: Wait for the Breakout

• Ascending chart patterns can take weeks to months to fully develop. Each new test of the resistance area has the potential to break out, but traders should be wary of false breakouts.
• A sustained breakout will typically be accompanied by above-average trading volume. The closer the ascending trendline comes to meeting the horizontal resistance line, the more likely a breakout is to occur.

Step 3: Enter a Trade

Traders can enter a bullish trade once a breakout is confirmed.

Step 4: Exit the Trade

• 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.
• When setting a stop loss, set it slightly below the resistance area. It is not uncommon for stocks to retest the resistance line – which becomes a support line after the breakout. They may drop slightly below this line before the breakout continues, but a significant drop below the resistance line signals that the breakout may have failed.

Trading Strategies Using the Ascending Triangle Pattern

We are going to show you basic but effective strategies to use when you identify the ascending triangle pattern.

The Breakout Trading Strategy

Breakout trading is one of the most popular trading techniques that enables traders to use technical indicators and charting patterns. In essence, this trading method involves entering a position when the price moves out of a defined range.

Stop Loss

Place the stop loss just below the last swing low within the triangle. This minimises potential losses if the breakout turns out to be false.

The Measuring Technique for Taking Profit target

Measure the height of the triangle (the distance between the horizontal resistance and the ascending support line). Project this distance upwards from the breakout point to set a realistic take profit level. The projection helps in setting a target based on the pattern’s dimensions, ensuring a systematic approach to profit-taking. Example of Trading Strategies Using the Ascending Triangle Pattern "If the triangle height is ₹10, the breakout target is ₹110 from the resistance at ₹100."

Advantages and Limitations of the Ascending Triangle Pattern

Advantages:

• Easy pattern to identify
• The ascending triangle produces a clear target level – based on the max height of the ascending triangle
• Since this is an intermediate-term pattern, traders have the option to trade within the triangle but should filter trades in the direction of the trend

Limitations:

• False breakouts are possible
• There is always a chance that price moves sideways for an extended period of time or even moves lower

Ascending Triangle Pattern vs. Other Patterns

Descending Triangle

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.

Symmetrical Triangle

Symmetrical triangles differ from ascending and descending triangles in that the upper and lower trend lines slope toward a center point. A symmetrical triangle is formed by trend lines connecting a series of sequentially lower peaks and higher troughs. This pattern is considered a continuation pattern, indicating a period of consolidation before the price breaks out.

Conclusion

The ascending triangle pattern allows traders to capitalize on the anticipated upward momentum trading as the breakout occurs. By identifying and understanding this pattern, market participants can position themselves strategically to take advantage of potential gains in the market. Learn more about technical patterns like the ascending triangle pattern with Sahi’s in-depth trading guides.