Ascending triangle patterns are bullish patterns. They have two or more previous resistance levels that form a flat top. They also have higher lows that form, causing a bullish trendline. Look for price action to break above the flat top. If price action retests and holds, there is bullish confirmation of a breakout.
An ascending triangle pattern consists of several candlesticks that form a rising bottom and at least two to three peak levels that form a flat top due to horizontal resistance. The rising bottom is formed using trend lines connecting at least two to three higher lows.
What Is an Ascending Triangle Pattern?
Ascending triangle patterns are bullish formations that form during an uptrend as a continuation of the trend. There are some instances where an ascending triangle pattern could form a reversal pattern, but these are typically continuation patterns.
Two trend lines form this pattern. One trend line is horizontal, while the other connects different price points as it heads up. The horizontal line has a strong resistance level. Price cannot seem to break that line. Hence, the ascending triangle patterns.
This trend generally forms during consolidation within an uptrend. Traders tend to enter when the price has broken the key resistance level. This increases buying pressure, which in turn causes the price to rise during stock trading. Two highs and two lows are needed to form the trend lines, but the more the price touches the trend lines, the more information they provide to the trader. Look for spinning tops near support or marubozu candlesticks inside the ascending triangle for signals that support continues to hold.
What It Looks Like:
First Element: Upward slope followed by a flat top pause and consideration.
Significance: The market has attempted multiple times to break the resistance level but has been unable to do so because the bears persist. As a result, a resistance line forms.
Second Element: A slanting or rising trend line moving upwards. Significance: The rising support trend line indicates that the price is forming higher lows, suggesting the bulls persist.
The Setup
Ascending triangles happen on all time frames. Typically, the longer it takes to form, the better the confirmation. The most important thing is how strongly the formation is set up. You need at least two highs to form the top horizontal trend line and a reaction low sandwiched between them. The highs do not have to be exact, but should be close in price.
The bottom trend line requires at least two lows to form. Lows need to be higher than the last as they move up. Higher lows are needed because the line is not straight across; it moves at an angle.
There needs to be distance between the lows; we cannot have them close together. The ascending triangle is invalid if the most recent low is the same or lower than the previous one.
Patterns can break down; factors such as news, changes in volume, increased or decreased buying or selling pressures, and more can affect the trend and direction of a stock.
Psychology of the Ascending Triangle
Thinking of the ascending triangle breakout as an ongoing battle between the bulls (buyers) and the bears (sellers) playing out on the chart can be helpful.
Initially, the forward momentum of the bulls drives 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 higher low, the bulls become slightly more aggressive. As the bulls persist, they set higher lows 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.
The bears win, and the 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.
Ascending Triangle Pattern Trading Strategy
- Watch for one to form by connecting at least 2 to 3 rising valleys (higher lows) via trend lines.
- Connect at least two to three previous highs via horizontal price lines.
- Once the price breaks out of the top of the flat top and holds, take a long entry.
- Use a candlestick close below the most recent swing low as your stop.
Ascending triangle patterns continue the existing trend. I’m just waiting for confirmation, so please avoid getting caught in a fake-out breakout. Be sure to have enough information to make a smart and informed trade. Always wait for confirmation.
How to Spot an Ascending Triangle Breakout
We have two key elements that make up the ascending triangle pattern:
- Bottom Trend Line (Support) – That’s formed as the stock sets higher lows. The more touchpoints we have on the trend line, the more reliable the pattern becomes.
- Flat Horizontal Resistance Line – That’s formed as the stock continues to reject its previous highs (for a given period). The more touch points on the resistance line, the more reliable the pattern will be.
Ascending Triangle Confirmation
Many traders require a close beyond resistance and/or volume expansion. Aggressive intraday entries work, but false breaks are common. Apart from this, it’s useless to wait for additional confirmation signals.
Waiting for confirmation with ascending triangle patterns will help keep the trader from falling into a bull trap; avoid getting caught in a false breakout. A large increase in volume can be confirmation that the breakout has occurred. A false breakout on an ascending triangle pattern occurs when the price falls significantly below the horizontal trend line, which serves as resistance, after the breakout. Then the price remains lower.
I often see these “fake-out breakouts” during lunch when volume consolidates. During this time, we observed a brief increase in volume, which could cause a slight upward pressure on the price. However, since the volume is not sustained, it creates a “bull trap” or a false signal due to a lack of information. This is why waiting for confirmation and using multiple tools that point in the same direction is important during a trade.
No one ever wants to leave money on the table, but being overly greedy can greatly increase the chances of falling into the trap. You can only take what the chart gives.
Multiple ascending triangles can be seen on the $AAPL chart above. The structure tends to form in bullish trends, with stocks trading above their nine-day moving average. TrendSpider allows traders to view shorter time frame charts alongside longer moving averages on the same chart.
Ascending Triangle Breakout
Bullish. We consider the ascending triangle pattern 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 or reversal pattern, this strategy is a bullish continuation pattern. Whenever we see an ascending triangle, we consider it a positive continuation pattern. In other words, it’s predictive, and the uptrend should continue. Flexible. Once identified, ascending triangle patterns can be used and applied on any time frame (i.e., intraday, hourly, daily, and weekly charts.
A Few Things We’ve Learned
- 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, the pattern develops with spiky bars that lead to false breakouts.
- Volume Matters. Once the triangle breakout occurs, a surge in volume is necessary. Otherwise, there’s not enough gas in the tank to sustain momentum.
- Location Matters. If you spot the ascending triangle inside a big trading range, 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 is to fail to hold at 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 the support trend line is increasing)?
- Verify that the preceding trend was bullish. Moreover, a prior uptrend suggests the breakout has a higher probability of happening to the upside.
Final Thoughts on Ascending Triangle Pattern
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 with it will complete the trading strategy.
Identifying the setup and recognizing the opportunity before others is a perfect head start. Luckily, if you missed the beginning of the trend, you can get in and ride the trend up. Use proper risk management techniques when trading ascending triangle patterns.
Frequently Asked Questions
An ascending triangle is typically a bullish pattern due to the rising higher-low formations. The flat top on ascending triangles is formed by connecting at least two to three previous high levels. The bullish confirmation occurs when prices break above the flat top and then retest and hold the new support.
The target for an ascending triangle breakout is close to the equal price difference of the widest part of the triangle area. Then add the difference between the resistance area and the low to the resistance level at the breakout.
An ascending triangle pattern is a bullish continuation pattern. It has a horizontal resistance level with a sloping support level, which creates higher lows. It signals that an uptrend is likely to continue.
