How To Trade with Ascending Triangle

The Ascending Triangle is a variation of the Symmetrical Triangle. The difference is that the Ascending Triangle has a flat line on top (i.e., horizontal trendline) instead of a downward slanting trendline like in the Symmetrical Triangle. The bottom of the pattern has an upward slanting trendline. The two lines eventually come together to form a flat-topped,

right-sided triangle. The Ascending Triangle is a continuation pattern. It’s generally considered bullish and is most reliable when found in an uptrend.

In ascending triangles, the market becomes overbought and needs to consolidate. As prices try to advance, they are turned back by selling. Buying then re-enters the market and prices soon reach their old highs. Resistance is met again and they are turned back once more. Resistance occurs at approximately the same high price each time (horizontal trendline), while new buying on the pullbacks, serve to lift the support levels higher (upward slanting trendline).

This bullish price action most often leads to an upside breakout in the direction of the preceding trend, as the old highs are taken out and prices are propelled even higher as new buying comes in. Volume usually diminishes during the formation of the pattern, but explodes on the breakout.

Ascending Triangles in Uptrends / Bullish As in the case of the Symmetrical Triangle, Ascending Triangles in uptrends are bullish and the breakout is generally accompanied by a marked increase in volume. Low volume breakouts should be watched carefully as they are more prone to failure. Ascending Triangles in downtrends are less reliable and are therefore not a part of the classic Chart Patterns set-ups.

Identifying and Drawing Ascending Triangles

Ascending Triangles are also quite easy to see on a chart. To identify an Ascending Triangle pattern on your own, remember that it has to have at least four points: two points at the top to draw the horizontal trendline and two points at the bottom to draw the upward slanting trendline. Connecting the two, approximately same, high points forms the top (flat) part of the triangle. Connecting the low and the subsequent higher low forms the bottom part of the triangle.

Ascending Triangles in uptrends are bullish.

For a bullish Ascending Triangle pattern, the first point (the point farthest left, i.e., the earliest point) is at the top. And just like Symmetrical Triangle, an Ascending Triangle can have more than four points. The image to the right has six. Measured Moves (Minimum Profit Targets) To determine your projected minimum profit target, measure the distance between points 1and 2. This is the widest part of the triangle and is often referred to as the base. For example: if the top of the base (point 1) was $70 and the bottom of the base (point 2) was $63, the base would be $7. This is your measured move. To project your minimum profit target, identify at what price the stock broke thru the Ascending Triangle. (This is easy to predict even if it hasn’t yet broken out because the

breakout point is essentially the high of the pattern (i.e., the flat trendline at the top). So if the breakout price is $70, then add $7 to that price and you get your minimum projected price target of $77. (See the image to the right.)

Failures and Stop-Out Points

There are different failure points based on how you enter the trade.

If you enter the trade after a breakout, you should use a move below the apex point as your failure point and exit the trade. A secondary failure point could be placed at the last point (or point 4 in this example). (See the gray dotted line showing this scenario.) This additional failure point is usually only used if the breakout and subsequent trading has not extended beyond the length of the pattern (i.e., apex) and the risk levels are still within your tolerance. (The image below depicts an Ascending Triangle in an uptrend for illustration.)

If you get in before a breakout occurs in anticipation of one, a move below the last point of the triangle (point 4 in this example) should be your failure point and you should consider exiting the trade. For the more experienced trader, you might choose to stay in a little longer if you believe the pattern is being ‘re-drawn’ into a new pattern such as a larger ascending triangle or a rectangle. If this is the case, use the bottom of the base (point 2) as the failure point and exit below there. (See the gray dotted line that shows this scenario.)This can makes sense if your early entry was near the

bottom of the pattern and staying in a little longer still keeps your risk within your level of tolerance. (The image below depicts an Ascending Triangle in an uptrend for illustration.)

Summary

Since this pattern is a continuation pattern, it’s most profitable to trade this in the direction of the preceding trend. And remember, it’s most reliable when found in uptrends. In fact, the Ascending Triangle has an astounding success rate, breaking out to the upside 70% of the time.

You can get in after a breakout has occurred or you can choose to get in early in anticipation of a breakout taking place. This high probability pattern is a great bullish indicator.