Ascending Triangle

An ascending triangle – the “flat-top” triangle – also shows two converging trendlines. In this case, the lower trendline is climbing and the upper trendline is horizontal. This pattern happens because the lows are moving frequently higher but the highs are keeping a constant price level.

What does an Ascending triangle look like?

Ascending Triangle
ascending triangle

An ascending triangle is characterized by a horizontal pattern of highs and sequentially higher lows, which show decreasing selling pressure every time the price approaches the diagonal line of support. The pattern can be recognized by an upward sloping support line and a flat top line indicating constant resistance.

The ascending triangle is normally considered to indicate bullish conditions in which the price trend is likely to move upward following the breakout from the formation. Traders should note that the ascending triangle can at times be followed by a breakout downward, especially when it has been preceded by a downward trend. The pattern can be confirmed with two or more highs near the resistance line.

Trading volume is likely to diminish while the triangle is being formed, and it will likely increase when the breakout upward occurs. A common approach for trading currencies with this pattern is to set a stop about 10 pips below the highest low in the line of support and set a limit equal to the height of the triangle above the line of resistance.
Traders are encouraged to wait for a closing price before taking a decision to make a trade.

The ascending triangle is a bullish structure that usually develops during an uptrend as a continuing pattern. There are cases when ascending triangles appear as reversal patterns at the end of a downtrend. But they are typically continuation patterns. Although, where they form, ascending triangles are bullish patterns that symbolize accumulation.

Ascending triangles are generally most reliable when found in an uptrend.

As you can see on the image above, the top part of the triangle appears flat, while the bottom part of the triangle has an upward slant. In ascending triangles, the market grows overbought and prices are returned back.

Buying then comes back to the market and prices quickly enter their old highs, and again turned back. Buying then resurfaces, although at a higher level than before. Prices finally break through the old highs and are moved even higher as new buying comes in.

That represent the pressure areas in a stock chart. The area of resistance tries to obstruct a rising price. But the underlying bullishness of the market drives the price gradually with swing ups and swing downs. That forms a pattern, which looks like a triangle. The top of the triangle is horizontal resistance trend line and the bottom is up sloping support trend line.

It may be both a reversal or continuation chart pattern. It is so named because the ascending support trend line predicts the rise in prices, hence the name ascending triangle.

How Ascending Triangle patterns are formed?

This pattern is created because of tug of conflict between the two great powers which move the price up and down, that is demand and supply.

The price might have fallen down strong support and now trying to move up against the support turned resistance. Or the rising market might come across a resistance area of prior price action. Or it might be a target area where traders want to charge profit.

Imagine a huge selling order at this particular resistance level. As the price moves up and meet this area, they are meeting with huge selling orders which increases the supply greater than demand. This forces the price down.

Ascending Triangle
Ascending Triangle

 

Once the price is considerably retraced, the stock becomes a value buy. So more people want to buy the stock which increases the demand pushing the price up. As it meets the previous resistance area, the price again falls due to increased supply.

This time the price falls only lesser than the previous fall. Now the price moves up with its swing low higher than the previous swing low. At a higher level, the price meets the high supply area and falls again.

This tug of war between buyers and sellers continues several times. But because of the strong bullish trend, the price swings keep making higher lows. If these wave bottoms are joined together by a trend line, it gives us the up sloping lower side of the triangle.

These upper horizontal lines and the lower up sloping lines if extended join on the right side. The triangle is completed by an imaginary line joining the left end of these lines.

What is the significance of the Ascending Triangle Pattern?

Pattern trading is one of the strategies of making money in stock trading. 

Ascending Triangle can be a continuation bullish pattern in an uptrend and it can be a reversal bullish pattern in a downtrend.

The moment you see two swing highs at the same level and two swing lows with second low higher than the first swing low, you should think of this pattern formation.

Swing highs at the same level signify strong resistance at that level. Higher swing lows signify strong bullishness. Now we have to wait to see whether the resistance gives way or the bullishness turns to bearishness. Usually, it is the resistance that gives way for the bullish force.

In this pattern usually, the price breaks above the resistance level somewhere between the first two thirds and the last one-third of the completed triangle. Once the upper horizontal trend line is broken above, the resistance level becomes the support level. The prices tend to test this support level by a pullback.

If the resistance turned support level gives good to support the prices moves up. The minimum target for this up move is equal to the height of the left base of the triangle. To get this measure the height of the base and apply that length from the breakout point, that is the upper horizontal trend line.

Always protect your trade with the stop-loss order placed below the pattern or conservatively, it can be placed below the breakout bar.

Quiz yourself about Ascending Triangle indicator in the following quiz:

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