In this guide you will learn how to place a trade using the ascending triangle pattern. This is a trade breakout strategy, which has the advantage of being on the lookout beforehand. All you need to do is learn the right trading technique, and you can recognize the anatomy of trade breakouts in real time.
The awful thing about this chart pattern is that it can be used on a 5-minute chart, 1-hour chart or whatever the preferred time frame is. It doesn’t matter what your trading style is, be it scalping, daytrading or swing trading. This is the theory behind the imbalances between supply and demand that make the price chart pattern work.
Let’s drill into it!
Let us understand how it forms and how we can trade ascending triangle formation.
See below:
Ascending Triangle Pattern
The ascending triangle formation is a continuation pattern and as the name suggests, 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 a bullish pattern.
Note *: the reverse of an ascending triangle is the descending triangle, also known as the bearish triangle.
What does the ascending triangle look like:
The first element of this price pattern is an upward slope followed by a flat top.
This shows that the market tried several times to break the resistance at the head, but it could not. That’s why we developed a resistance line.
The second element of the ascending triangle is a slant or an ascending trend line moving upwards. This is what makes the pattern bullish.
Check out the chart below:
Remember that all continuation patterns such as the bullish flag, the rectangle pattern and many others that you can find on our trading strategies website must have a context of a trend.
In the case of the bullish ascending triangle, we must have a previous uptrend to support the breakout. The easiest way to remember this is:
- Ascending triangles develop within bullish trends.
- Ascending triangles develop within bearish trends.
Now that we’ve learned what the ascending formation looks like, we want to share with you two things we learned from trading the bullish triangle.
The first trick we learned is that the triangle pattern rarely has a perfect shape on a price chart.
Often you see the rising wedge pattern that will break the resistance line but has 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 wait for the triangle pattern to break and close above our resistance line. Start buying only with the next candle opening.
Trying to buy every swing high can get you stuck in a whipsaw when trading this pattern
Next, we’ll go into a simple breakout trading strategy that will teach you how to identify and trade the ascending triangle formation.
Ascending Triangle Chart
Now let’s go through some things that will make the triangle pattern easier to understand.
You really have to think about what’s going on behind the scenes. We want to look not only at the price, but also at what the market participants are doing.
As the price rises, it begins to develop the classic higher lows. For whatever reasons, buyers can get a little more aggressive with each new consecutive higher low. Or we can say that the sellers are not too aggressive if the market is trending inside the ascending triangle chart pattern.
Either way, this is what causes the triangle price formation to develop.
If we reach the peak of the triangle where the price has nowhere to go, this is the moment when we should expect a breakout.
Once the triangle break occurs, we should see a volume pick-up that could produce a nice long trade.
The location of the pattern is also important!
If the triangle pattern is inside a major trading range, the fixed resistance level may not be as significant. However, if the ascending triangle price formation develops in the middle of a bearish trend, it will carry more weight to the pattern.
If the ascending triangle develops within a trend, we will be interested in buying the momentum.
Ascending triangle trading strategy
The ascending triangle trading strategy is an easy method of capturing holdings within a trend. To confirm the breakdown, we are going to use the RSI tool which is a momentum based indicator.
Since the price usually rallies within the ascending triangle pattern, the bulls or the bears must win at one point. With the RSI indicator in our trading arsenal, we can predict in advance who will win this battle.
How does it work?
Let’s get it step by step:
Step # 1: The ascending triangle must have a flat resistance and an ascending support
The two elements of a good ascending triangle pattern are:
- A flat resistance to being hit multiple times. The more a resistance line is tested, the greater the chance that it will eventually fail to hold above the resistance level.
- The second element is an ascending trend line that connects the successive higher lows in the ascending triangle formation.
Check out the ascending triangle chart below:
Next, we are going to make use of the RSI technical indicator.
See below:
Step 2: Apply the RSI 20 periods to your chart
Normally, the price action consolidates within the ascending triangle formation. This means that there is a constant battle between the bulls and the bears. Determining who will win this battle can be done by looking at the RSI readings.
Before the break point arrives, we can look at the action within the consolidation to decide if it is worth taking the tempo, or if it is better to just wait for another trade.
What we want to see is the momentum declining after each successive test of the flat resistance level. Basically, we are looking at a strong deviation from the RSI indicator.
Check out the ascending triangle chart below:
Before we buy the breakout, we need to check one more thing.
See below:
Step #3: See if we have a bullish trend before the ascending triangle
As a continuation pattern, we obviously need a preceding trend. In the case of the ascending triangle, which is a bullish pattern, we must have a preceding uptrend.
If we have a prior rise, it indicates that the rate of the rate is higher to the upside.
Check out the ascending triangle chart below:
The final step is to define our entry point and measure our profit goals.
See below:
Step 4: Buy as soon as we break above the shallow resistance level
With continuation patterns, the best strategy is to buy immediately with the momentum. If we wait too long, we will end up leaving available profits on the table.
We already have so many confluence factors confirming the outline that it is pointless to wait for more confirmation. After all, we want to have the edge and be ahead of the crowd.
For the profitable strategy we are going to use our favorite measurement technique. It is a dynamic strategy that is based on the actual price rather than a random number.
To find the profit target, simply take the high and low of the ascending triangle formation and add the measurement to the breakout level. This gives you the ideal target for this continuation pattern.
Conclusion – Ascending triangle formation
The ascending triangle formation is a very powerful chart pattern that takes advantage of the supply and demand imbalance in the market. You can get your trades out with this simple pattern and ride the trend if you missed the start of the trend.
Many technical analysts trade the opportunity without even taking the time to understand what is going on behind the scenes. With the ascending triangle we can have a perfect lead and see the trading opportunity before it happens. Being able to recognize the ascending triangle pattern can be a valuable tool you can use to identify profitable trades.
Thanks for reading!