What is Ascending Triangle Pattern?
It is a chart pattern, characterized by horizontal top and rising bottom. This is created when a bullish market pushes up against a resistance level.
They are the pressure areas in a stock chart where the area of resistance tries to block a rising price. But the underlying bullishness of the market pushes the price slowly with swing ups and swing downs, which 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 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.
Trend is your friend. Dance with the friend. Tune to the trend.
This pattern is formed because of tug of war between the two great forces which move the price up and down, that is demand and supply.
The price might have fallen down a strong support and now trying to move up against the support turned resistance. Or rising market might come across a resistance area of previous price action. Or it might be a target area where traders want to book profit.
Imagine a huge selling order at this particular resistance level. As the price move up and meet this area, they are meeting with huge selling orders which increases the supply greater than demand. This pushes the price down.
Once the price is considerably retraced, the stock becomes a value buy. So more people wants 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 with its swing low higher than the previous swing low. At higher level the price meets the high supply area and falls again.
This tug of war between buyers and sellers continues several time. But because of strong bullish under current the price swings keep making higher lows. If these swing bottoms are joined together by a trend line, it gives us the up sloping lower side of the triangle.
But the sell off is at a fixed level which acts as a resistance to the rising price. So all the swing highs are formed at the same level. If these swing tops are joined together, it gives us the horizontal upper side of the triangle.
These upper horizontal line 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.
This completes the formation of ascending triangle.
Because of its strength, It finally breaks out of the resistance level to give us a long trade.
Study the charts given below.
Pattern trading is one of the strategies of making money in stock trading. Among the patterns different types of triangle formation gives consistent results.
Ascending Triangle is a bullish pattern. It can be a continuation bullish pattern in an up trend and it can be a reversal bullish pattern in a down trend.
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 signifies strong resistance at that level. Higher swing lows signifies 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 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 support level. The prices tend to test this support level by a pull back.
If the resistance turned support level gives good 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 the breakout bar.
This Ascending Triangle is a bullish continuation pattern in an uptrend.
Usually Ascending Triangle formation is a bullish pattern. But rarely it can also occur in a down trend when the prices make false break down below a support level. After break down the demand increases more than the supply, pushing the price up. Now it acts as a reversal pattern.
This Ascending Triangle is a bullish reversal pattern in a downtrend.
Occasionally the prices fails to push up the resistance level, that is at the horizontal base of the triangle and thus breaks down.
This Ascending Triangle is a bearish reversal pattern in an uptrend.
This is basically a bullish pattern. So when it breakout to the up side it invariably performs better than when it breakout to the down side.
There are many more chart pattern formation used in pattern trading. Some of them are listed below. You may click on the name of each chart pattern listed below to learn and understand more about them.
Continuation Chart Patterns