What is an ascending triangle?
The ascending triangle is a chart pattern used in technical analysis. It is created by price movement, allowing horizontal lines to be drawn along swing highs and uptrend lines to be drawn along swing lows. These two lines form a triangle. Traders often watch for breakouts of triangle patterns. Breakouts can occur on the upside or downside.
Ascending triangles are often called continuation patterns because price usually breaks out in the same direction as the trend that preceded the triangle formation. 1
The ascending triangle is tradable because it provides clear entry points, profit targets, and stop loss levels. It can be contrasted with the descending triangle.
Key takeaways
The trendline of a triangle needs to run along at least two swing highs and two swing lows.
The ascending triangle is considered a continuation pattern because price will usually break out of the triangle in the direction of the price that preceded the triangle, although this does not always happen. Breakouts in any direction are worth noting.
If price breaks above the top of the pattern, enter a long trade.
If the price breaks below the lower trend line, enter a short trade.
Stops are usually placed outside of the pattern on the opposite side of the breakout.
The profit target is calculated by taking the height of the thickest point of the triangle and adding it to or subtracting it from the breakout point.
What does the ascending triangle tell you?
The Ascending Triangle is generally considered a continuation pattern, which means that the pattern is significant if it appears within an uptrend or downtrend. 1 Once a triangle breaks out, traders tend to actively buy or sell the asset depending on the direction of the price breakout.
An increase in volume helps confirm a breakout because it shows interest is increasing as price moves out of the pattern.
At least two swing highs and two swing lows are needed to form the trendline of an ascending triangle. But more trendline contacts tend to produce more reliable trading results. As the trend lines intersect, if price continues to move within the triangle multiple swings, the price action will become more convoluted, potentially leading to a stronger eventual breakout.
Volume during trends tends to be greater than during consolidation. A triangle is a consolidation, so volume tends to contract during an ascending triangle. As mentioned earlier, traders look for increased volume on a breakout as this helps confirm that price is likely to continue heading in the direction of the breakout. If price breaks out with low volume, this is a warning sign that the breakout lacks power. This could mean prices will return to this pattern. This is called a false breakout.
For trading purposes, it is common to enter a trade on a price breakout. If the breakout occurs on the upside, buy, if the breakout occurs on the downside, go short/sell. Stop loss is placed on the outside of the opposite side of the pattern. For example, if taking a long trade on an upward breakout, place your stop loss below the lower trendline.
Profit targets can be estimated based on the breakout price plus or minus the height of the triangle. Use the thickest part of the triangle. If the triangle is $5 higher, add $5 to the upside breakout to get a price target. If the price breaks below, the profit target is the breakout point minus $5.
An ascending triangle forms here in a downtrend, with price continuing lower after the breakout. Once the breakout occurs, the profit target is reached. When the price breaks below the lower trend line, a short entry or sell signal occurs. Stop loss can be placed above the upper trend line.
Broad patterns like this have higher risk/reward than patterns that become narrower over time. As the pattern narrows, the stop loss becomes smaller because the distance to the breakout point is smaller, but the profit target is still based on the largest part of the pattern.