Investors enter when a price breakout occurs while looking for false breakouts. They purchase for an upward breakout and sell for a downward breakout, depending on which way the breakout occurs. To calculate the profit target, traders consider the triangle’s height at the maximum width and adjust the measurement as per the breakout price. An ascending triangle is a breakout pattern that develops when the price breaks through the top horizontal trendline while rising volume. The upper trendline must be horizontal, indicating similar highs, forming a resistance level.
Demand and Supply theory is the perfect solution for technical analysts. It’s important to consider market conditions, overall trends, and other factors that may impact the price movement. The bears get a brief moment in the sun, scoring a dramatic pullback. Over the next few weeks, the bulls retake control and march the price back up to the breakdown level. Before it reaches the prior low, buyers wrestle back the reins once again and go for another test of the horizontal resistance level. This cycle repeats for several weeks, with the bulls buying the price back up every time it falls.
You could even place a stop limit to buy the breakout automatically (though that does have its own risks). Or, a “failed” ascending triangle can evolve into a symmetrical triangle or a convoluted cup and handle. That’s partly ascending triangle pattern because they tend to span longer periods of time and therefore carry more weight. This is especially true of the most iconic patterns like the ascending triangle. Since they are so well-known, there are often many parties itching to join the fray.
- Thirdly, the volume should reduce during the formation of the pattern and increase during price breakout.
- Each new test of the resistance area has the potential to break out, but traders should be wary of false breakouts.
- But patterns with a lot of empty space are seen as less reliable.
- Almost half (46%) of ascending triangles with downward breakouts will bust (move higher), rising an average of 36% (to the ultimate high).
- The ascending triangle pattern isn’t just a textbook diagram; it’s a real-world player, whispering clues to traders like you and me.
The ascending triangle is an incredibly helpful pattern when assessing potential trend continuations. It does, however, have its shortcomings and traders ought to be aware of both. In contrast to the symmetrical triangle, an ascending triangle has a definitive bullish bias before the actual breakout. If you will recall, the symmetrical triangle is a neutral formation that relies on the impending breakout to dictate the direction of the next move.
Ascending Triangle Pattern Strategy — What Is It? (Backtest, Example, and Trading Insights)
Likewise, you can use the Moving Average Convergence Divergence (MACD) to verify the strength of the breakout. If the MACD line crosses above the signal line, it indicates underlying strength and that the breakout may follow through to the upside. Open your account with Pepperstone or eToro to access award-winning platforms, tight spreads, and innovative tools for Forex and CFDs. If you try to buy every swing high you can get stuck in a whipsaw when you’re trading this pattern. The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms.
- Awareness of these limitations can lead to more balanced and informed trading choices.
- Identify these levels and establish your contingency plans in advance.
- Meanwhile, the ascending lower trendline, with its higher lows, is a testament to a growing buying interest, suggesting an increasing willingness to purchase at higher prices.
- An ascending triangle bullish pattern built with only two highs and two lows might be considered less reliable than one built with ten peaks and ten troughs.
- As soon as it is appropriate, move your stop loss up to a level that ensures you can’t lose money.
- Ascending triangle patterns work off the assumed psychology of investors.
Ascending Triangle Pattern: Bullish Breakout In 4-Steps
It is considered a continuation chart pattern, which means that when it forms, the price is likely to continue in the trend direction. The ascending triangle is a bullish continuation pattern and is characterized by a rising lower trendline and a flat upper trend line that acts as a support. Ascending triangle pattern indicates that buyers are more aggressive than sellers as price continues to make higher lows. When the price breaks out of the tringle in the direction of the overall trend the pattern gets completed. In contrast to the ascending triangle pattern, a descending triangle pattern forms when there is a horizontal support level and a declining trendline.
Wrong Market Environment
A break below the lower trendline in a rising wedge indicates a bearish move or trend reversal. It is also important to remember that ascending triangles can fail at a rate of 17%, and traders should always have an exit strategy in case of a failed pattern. Furthermore, managing risk during any trade is essential, as the potential for loss is still real.