Ascending Triangle Breakout

Ascending Triangle Breakout

6 min read

The ascending triangle breakout is fantastic to trade. Do you find yourself missing the running stocks and getting into trades too late? What if I told you one strategy that highlights breakouts before they happen? 

Luckily, all you need to do is recognize the pattern in the wild to identify the breakouts that are brewing. In this blog post, you’ll learn how to spot specific breakouts with the ascending triangle breakout strategy

Surprisingly, the cool thing about this chart pattern is that you can apply it to any time frame you desire – 5-minute, 1-minute, hourly, it doesn’t matter. 

Furthermore, no matter your trading style, whether it’s swing trading, day trading or scalping, this pattern can work for you.  

Let’s get into it!

  1. We have two key elements that make up the ascending triangle pattern:
  2. 1. Bottom Trend Line (Support) – That’s formed as the stock continues to set higher lows. The more touch points we have on the trend line, the more reliable the pattern.
  3. 2. Flat Horizontal Resistance Line – That’s formed as the stock continues to reject its previous highs (for a given period). Once again, the more touch points on the resistance line, the more reliable the pattern will be.

Characteristics of the Ascending Triangle Breakout

BullishWe consider the ascending triangle pattern to be bullish because it leads to a bullish breakout. Once spotted, traders go long when the upper resistance level breaks.  

A Continuation Pattern. Unlike a rounding bottom pattern which is a reversal pattern, this strategy is a bullish continuation pattern. Any time we see an ascending triangle, we consider it a positive continuation pattern. In other words, it’s predictive in nature, and the uptrend should continue. Flexible. Once identified, ascending triangle patterns can be used and applied on pretty much any time frame (i.e. intraday, hourly, daily, and weekly charts.

What Ascending Triangle Breakouts Looks Like

First Element: Upward slope followed by a flat top pause and consideration 

Significance: This means the market has tried multiple times to break the resistance top, but it couldn’t because the bears are persisting. Because of this, a resistance line develops.

Second Element: A slanting or a rising trend line moving upwards. Significance: The rising support trend line means the price is making higher lows; the bulls are persisting.

SPY Ascending Triangle Breakout
An ascending triangle on the $SPY intraday 5 minute chart. Note how the bulls increased their buying volume as we broke over the flat top (flat top breakout)

The Psychology Behind the Ascending Triangle Formation

It can be helpful to think of the ascending triangle breakout as an ongoing battle between the bulls (buyers) and the bears (sellers) playing out on the chart. 

In the beginning, the forward momentum of the bulls pushes the price higher. Unfortunately, they hit a wall and a flat resistance level forms as they get overpowered by the bears.

For whatever reason, with each new successive higher low, the bulls become a little bit more aggressive. And as the bulls persist, they set new higher lows seen in the upward moving bottom trend line. 

It’s a constant push-pull tug of war with the price confined to the vertex of the triangle. We’ve reached a climax; things could go either way at this point.

Either the bears win, and price falls through the bottom trend line. Or, the bulls win and break the flat resistance line.

Once this flat resistance line breaks, hold on for the ride, a breakout’s triggered, and the bulls push the price up. 

A Few Things We’ve Learned From Trading Breakouts Using Ascending Triangles:

  1. Not Everything Is As It Seems. Often, the triangle pattern will rarely have a perfect shape. In other cases, you’ll spot the ascending wedge pattern, which will break the resistance line, but there’s no real momentum behind the breakout. Alternatively, you might see the pattern develop with spiky bars that lead to false breakouts.
  2. Volume Matters. Once the triangle breakout happens, a surge in volume needs to happen. Otherwise, there’s not enough gas in the tank to sustain momentum. 
  3. Location Matters. If you spot the ascending triangle inside of a big trading range, then the solid resistance level might not be all that significant. However, if you spot the ascending triangle price formation in the middle of a bullish trend, take note. Under these circumstances, the pattern matters.

Key Points to Consider

  • One element of a good ascending triangle breakout is a flat resistance level that’s been hit numerous times. Without a doubt, the more a resistance line is tested, the more likely it will fail to hold as the resistance level.
  • Why don’t you apply the RSI 20-periods to your chart and look to see a bearish divergence developing on the RSI indicator (i.e. RSI is decreasing while support trend line increasing).
  • Verify that the preceding trend was bullish. Moreover, a prior uptrend suggests the breakout has a higher probability of happening to the upside.

Timing Your Trigger Entry Point

For fear of a false breakout on the ascending triangle breakout, you need to wait for a close above the resistance line. I can’t stress enough that you buy as soon as the break above the flat resistance level happens. 

Apart from this, it’s useless to wait for additional confirmation signals. The best strategy with continuation patterns is to buy straight away with the breakout. 

Closing Thoughts

The ascending triangle breakout strategy is an extremely powerful chart setup that exploits many of the supply and demand imbalances in the market. Using price action in conjunction is going to complete the trading strategy. 

By identifying the setup, and recognizing the opportunity before others, it’s a perfect head start.  

Luckily, if you missed the beginning of the trend, you can get in and ride the trend up. Thank you for reading!  Don’t forget to read our blog posts on some other powerful chart patterns. 

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