What is an Ascending Triangle Pattern?
An Ascending Triangle is a bullish chart pattern that is a signal for traders to take a long position when the price spikes up above the resistance level and bounces off the uptrend. Upside momentum is likely to continue or become even stronger. There are instances when ascending triangles form as reversal patterns at the end of a downtrend, but they are typically marked off as continuation patterns. Ascending triangles are inherently bullish patterns by nature that indicate accumulation.
How to Identify an Ascending Triangle Pattern
The ascending triangle is a fairly easy chart pattern to spot once you know what you’re looking for, here are the five (5) key points:
- Uptrend: The market must be in an uptrend before the ascending triangle pattern appears. This is important and emphasizes that traders should not simply trade the pattern whenever the ascending triangle appears.
- Consolidation: The ascending triangle then appears while the market enters the consolidation phase
- Lower Trend line: While the market is consolidating, an uptrend can be drawn by connecting the lows. The uptrend indicates that buyers are pushing the price up, which confirms the bullish bias.
- Upper Trend line: The upper trend line acts as resistance. Price often approaches this level and bounces off until the breakout eventually occurs.
- Trend Continuation: After price posts a strong break above the upper trend line, traders will look for confirmation of the pattern by continued upwards momentum.
Trading an Ascending Triangle Pattern
Looking at the daily time frame of ETH/USD (Ethereum) right after the novel coronavirus crash in the middle of March 2020. The price fell from $246 down to $120, which formed the start of the ascending triangle. It formed a resistance at $246 as well as an uptrend, creating a rising wedge, also known as an ascending triangle. The price of ETH was squeezed in between the resistance level and the uptrend until it eventually broke out to the topside, after it couldn’t be squeezed together anymore. It never came back down and hit the $246 resistance level turned support again to this date.
Looking at the weekly time frame of Apple we can see a very obvious ascending triangle formed. This chart we’re looking at covers a span of over 2 years, it’s not some basic chart spanning 2 weeks. $24.53 was the level of resistance formed as the start of the downtrend until it found bottom around $15 and created this uptrend. From here, Apple managed to continue finding levels of support along this uptrend until it eventually broke out of the resistance formed at $24 and officially started its bullish trend.
Differences Between the Ascending Triangle and Descending Triangle
Although the ascending and descending triangle both represent the price being wedged in between a level of support/resistance and a trend line before a breakout, they are actually the exact opposite of each other.
Hence the name ascending triangle, the price of the asset is ascending before it breaks out to an even higher trading price. It is squeezed together between an uptrend and a level of resistance. The ascending triangle represents bullish momentum and a breakout to the upside is expected.
The descending triangle squeezes the price of the asset between a level of support and a downtrend before it breaks out to an even lower trading price. The descending triangle represents bearish momentum and a breakout to the downside is expected.
Limitations of Ascending Triangles
Although ascending triangles appear to be pretty solid in terms of direction of the momentum of the asset, you shouldn’t trade solely based off of this one pattern. As a trader, you need to take into consideration where in the market this pattern appears and on what time frame. The higher the time frame and end of a downtrend sell off, the more respected this pattern is.
