In this guide you’ll learn how to place a trade using the ascending triangle pattern. This is a breakout trading strategy that has the advantage of highlighting breakouts in advance. All you need to do is to learn the right trading technique and you'll be able to recognize the real time the anatomy of trading breakouts.
The cool thing about this chart pattern is that it can be used it on a 5 minute chart, 1 hour chart or whatever is our preferred time frame. No matter of our trading style, be it scalping, or daytrading or swing trading. It’s the theory behind the supply-demand imbalances that makes the price chart pattern work.
Let’s drill down into it!
Let’s understand how it forms and how we can trade ascending triangle formation.
Ascending Triangle Pattern
The ascending triangle formation is a continuation pattern and as the name suggest it has the shape of a triangle. The ascending triangle is also known as the bullish triangle because it leads to a bullish breakout.
The triangle chart pattern is generally considered as a bullish pattern.
Note*: the reverse of an ascending triangle is the descending triangle also known as the bearish triangle.
How is the ascending triangle looks like:
The first element of this price pattern is an upward slope followed by a flat top.
This shows that the market has tried multiple times to break the resistance top but it couldn’t. Hence, we have developed a resistance line.
The second element of the ascending triangle is a slanting or a rising trendline moving upwards. This is what makes the pattern bullish.
See chart below:
Remember that all continuation patterns like the bullish flag, rectangle pattern and many others that you can find through our Trading Strategy Guides website, need to have a context of a trend.
In the case of the bullish ascending triangle we need to have a previous uptrend to support the breakout. The easiest way to remember it is:
- Ascending triangles develop within bullish trends.
- Ascending triangles develop within bearish trends.
Now that we’ve learnt how the ascending formation looks like we want to share with you two things that we have learned from trading the bullish triangle.
The first little trick that we’ve learned is that on a price chart the triangle pattern will rarely have a perfect shape.
Often times you’ll see the ascending wedge pattern which will break the resistance line but have no real momentum behind the breakout. Other times, the pattern will develop spiky bars that will lead to false breakouts.
What you need to do is to wait for the triangle pattern to breakout and close above our resistance line. Only then start buying on the next candle opening.
If you try to buy every swing high you can get stuck in a whipsaw when you’re trading this pattern
Next, we’ll jump to a simple breakout trading strategy that will teach you how to identify and trade the ascending triangle formation.
Ascending Triangle Chart
Let’s now go over through some stuff that will make the triangle pattern more easy to be understood.
You really need to think in terms of what it’s going on behind the scene. We don’t like just to look at the price, but also at what the market participants are doing.
When the price is moving up, it starts to develop the classical higher lows. For whatever the reasons may be buyers become a little bit more aggressive with each new successive higher low. Or, we can say that the sellers aren’t too aggressive when the market turns down inside the ascending triangle chart pattern.
Whichever side of the coin it is, that is what it’s causing the triangle price formation to develop.
When we reach the climax point of the triangle where the price has nowhere to go, that’s the moment when we should anticipate a breakout.
Once the triangle breakout happens we need to see a pick up in volume that will result in a nice long trade.
The location of the pattern is also important!
If the triangle pattern is inside of a big trading range, then the solid resistance level might not be that significant. However, if the ascending triangle price formation develops in the middle of a bullish trend, that would add more weight to the pattern.
When the ascending triangle develops within a trend then we’re going to be interested in buying the breakout.
Ascending Triangle Trading Strategy
The ascending triangle trading strategy is an easy method to capture breakouts inside a trend. In order to confirm the breakout we’re going to use the RSI tool which is a momentum-based indicator.
Since the price usually contracts inside the ascending triangle pattern, at one point either the bulls or the bears must win. With the RSI indicator in our trading arsenal we can determine in advance who is going to win this battle.
How it works?
Let’s get it step-by-step:
Step #1: The Ascending Triangle must Have a Flat Resistance and a Rising Support Trendline
The two elements of a good ascending triangle pattern are:
- A flat resistance that it’s hit multiple times. The more a resistance line is tested, the more likely it will eventually fail to hold as resistance level.
- The second element is a rising support trendline that connects the successive higher lows inside the ascending triangle formation.
See the ascending triangle chart below:
Next, we’re going to make use of the RSI technical indicator.
Step #2: Apply the RSI 20-periods on your Chart
Normally, the price action consolidates inside the ascending triangle formation.This means that there is an ongoing battle between the bulls and the bears. Assessing who is going to win this battle can be done by looking the RSI readings.
Before the breakout to come we can look at the action inside the consolidation to decide if it’s worth taking the breakout or it’s better to just wait for another trade.
What we want to see is momentum decreasing after each successive retest of the flat resistance level. Basically, we look to see a bearish divergence developing on the RSI indicator.
See the ascending triangle chart below:
Now, before buying the breakout we need to check one more thing.
Step #3: Check if prior to the Ascending Triangle we have a bullish trend
As a continuation pattern, naturally we need a preceding trend. In the case of the ascending triangle, which is a bullish pattern, we need to have a prior uptrend.
If we have a prior uptrend, it suggests that the breakout has a higher probability to happen on the upside.
See the ascending triangle chart below:
Last step is to define our entry trigger point and to measure our profit targets.
Step #4: Buy as soon as we break above the flat resistance level
With continuation patterns, the best strategy is to buy straight away with the breakout. If we wait too much we end up leaving some of the available profits on the table.
We already have so many confluence factors that confirm the breakout that it’s useless to wait for more confirmation. After all we want to anticipate the breakout and be ahead of the crowd.
For the take profit strategy, we’re going to use our favorite measuring technique. This is a dynamic strategy that it’s based on the actual price rather than random number.
To find the profit target, simply the the high and the low of the ascending triangle formation and add that measurement to the breakout level which will give you the ideal target for this continuation pattern.
Conclusion – Ascending Triangle Formation
The ascending triangle formation is a very powerful chart pattern that exploits the supply and demand imbalances in the market. You can time your trades with this simple pattern and ride the trend if you missed the start of the trend.
Many technical analysts trade the breakout without first taking the time to understand what goes behind the scene. With the ascending triangle we can have a perfect head start, and see the trading opportunity before it happens. So, being able to recognize the ascending triangle pattern can be a valuable tool that you can use to identify profitable trades.
Thank you for reading!
Don't forget to read this article on symmetrical triangle trading.
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