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Grasping the Ascending Triangle in Trading

12 Dec 2023

Introduction

You can consider using the Ascending Triangle pattern if you are busy checking out different charts but still need to figure out which one might be a good sign for your trade. This chart pattern is used in technical analysis and is characterised by a horizontal line. The pattern is a harbinger of potential price breakouts. Understanding how it works could mean distinguishing between a missed opportunity and a profitable trade. Let's grasp the functioning of this chart pattern in detail.

What is an Ascending Triangle pattern?

An Ascending Triangle pattern is a chart pattern formed by two trendlines: a horizontal line that acts as a resistance and an upward-sloping line that acts as a support. The resistance line connects the swing highs of the price, while the support line connects the higher lows of the price. The pattern shows that the buyers are gradually gaining more control over the market as they push the price higher and higher towards the resistance. The pattern is completed when the price breaks above the resistance, indicating a continuation of the uptrend.

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How to trade the Ascending Triangle pattern?

Trading the Ascending Triangle pattern is relatively simple as long as you follow some basic rules and guidelines. Here are the steps: 

  • Identify the pattern on the chart and draw the trendlines to mark the resistance and support levels.
  • Wait for the price to break above the resistance with a strong candlestick and a surge in volume. This confirms the breakout and signals the start of a new bullish move.
  • Enter a long position as soon as the breakout occurs or on a pullback to the resistance-turned-support level.
  • Place a stop loss below the support line or the most recent swing low, depending on your risk tolerance and trading style.
  • Set a profit target based on the pattern's height, which is the distance between the resistance and the support at the widest part of the triangle. Add this distance to the breakout point to get the potential target price.
  • Monitor the trade movements and adjust your stop loss and profit target as needed, depending on the market conditions and price action.

Tips and warnings for trading the Ascending Triangle pattern

Trading the Ascending Triangle pattern can be rewarding but involves risks and challenges. Here are some tips and warnings to help you trade the pattern more effectively and safely:

  • Trade the pattern only in the direction of the prevailing trend, as it is a continuation pattern and not a reversal pattern. Avoid trading the pattern against the trend, as it may result in a false breakout or a failure of the pattern.
  • Wait for a close above the resistance, not just a touch or a spike, to confirm the breakout and avoid false signals. A close above the resistance shows that the buyers have overcome the sellers and have taken control of the market.
  • Use volume, trendlines, and other indicators to confirm the breakout and the trend's strength. A breakout with a high volume means a strong demand and a high probability of a successful trade. A breakout with a low volume shows a weak market and a low likelihood of a successful trade. Trendlines and indicators can also help you identify support and resistance levels, trend direction, momentum, and divergence.
  • Be aware of the possibility of a reversal or a failure of the pattern, especially if the price does not break above the resistance after several attempts or if the price breaks below the support line. A reversal or a failure of the pattern suggests that the buyers have lost their power and the sellers have taken over the market. In such cases, exit the trade immediately and cut your losses.

Conclusion

The Ascending Triangle pattern is one of the most reliable and profitable patterns in technical analysis, as it shows a strong bullish trend and a high potential for a breakout. By following the steps and guidelines outlined in this blog post, you can learn how to spot and trade the pattern effectively and increase your chances of success. However, you should also be aware of the risks and challenges involved in trading the pattern and use proper risk management and trading discipline.

 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 

 

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