CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

How to Trade the Ascending Triangle

By Capital.com News

15:11, 6 September 2023

Any material provided is for information purposes only and is not investment advice. Any opinions that may be provided are not a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided. If you rely on the information on this page then you do so entirely on your own risk.

Welcome to Part 2 of our 7-part Power Patterns series. In this series, we'll be equipping you with the skills to trade some of the most powerful price patterns which occur on any timeframe in every market.

This week’s pattern, the ascending triangle can often precede fast and powerful breakouts. A strong understanding of this pattern is essential for any trader looking to trade with the trend.

We’ll teach you:

  • Why the ascending triangle is our favourite type of bull flag
  • How to trade this pattern with precision
  • Why volume is this patterns perfect companion

I. Key characteristics of the ascending triangle:

The essence of this pattern lies in the convergence of support and resistance lines, effectively compressing the market toward an impending breakout.

  • Horizontal resistance: The upper boundary of the ascending triangle acts as a significant resistance level, representing the area where selling pressure has historically been strong.
  • Ascending trendline: The ascending trendline connects higher swing lows, indicating increasing buying pressure as higher swing lows are formed.
  • Preceding trend: The ascending triangle should be preceded by a clear and obvious uptrend.

snapshot

II. Not your average bull flag

In the realm of pattern analysis, ascending triangles are often grouped with bull flags, which encompass various patterns like pennants, wedges, symmetrical triangles, and bull channels. These patterns typically signify a pause in an uptrend, indicating a period of consolidation in the market.

However, during this consolidation phase, a subtle battle unfolds as buyers seek to accumulate while sellers aim to distribute. The challenge lies in determining which side has the upper hand and this is what makes ascending triangles so useful. Ascending triangles stand out from the crowd of bull flags due to one crucial distinction:

Ascending triangles signal increasing buying pressure

The sequence of higher swing lows meeting a horizontal resistance level serves as a unique indicator that buying pressure is on the rise even as the market consolidates. This particular characteristic sets ascending triangles apart from other bull flag patterns, rendering them notably more potent.

III. How to trade the ascending triangle:

Identifying the ascending triangle: Begin by scanning price charts for the distinctive pattern of higher swing lows connected by an ascending trendline and a horizontal resistance line. Confirmation of the pattern requires at least two reaction highs and two reaction lows.

Entry points: Look for entry opportunities when the price breaks above the horizontal resistance line, signalling a potential bullish breakout. Some traders may prefer to enter early by buying near the ascending trendline with a stop-loss order below it.

BTC/USD

67,192.05 Price
+0.180% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

XRP/USD

0.53 Price
+0.010% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

Gold

2,415.65 Price
+1.590% 1D Chg, %
Long position overnight fee -0.0187%
Short position overnight fee 0.0105%
Overnight fee time 21:00 (UTC)
Spread 1.50

ETH/USD

3,128.22 Price
+0.840% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

Stop-loss placement: To manage risk, place a stop-loss order below the ascending trendline or below the most recent swing low.

Price targets: Calculate potential price targets by measuring the height of the triangle's vertical distance and projecting it upward from the breakout point. Additionally, consider previous swing highs or key resistance levels as potential targets.

snapshot

IV. The indicator which best complements the ascending triangle:

While the ascending triangle pattern holds its own in providing valuable insights, incorporating volume can significantly enhance its effectiveness. This additional dimension serves as both a quality filter and a confirmation tool before committing to ascending triangle breakouts.

Diminishing volume: During the development of the ascending triangle, a common occurrence is a gradual decline in trading volume.

Breakout confirmation: Ideally, a breakout should be marked by a noticeable surge in trading volume. This surge acts as a validation of the breakout's strength and serves as a crucial deterrent against false signals.

snapshot

V. Managing risks and pitfalls:

False breakouts: Be aware that ascending triangles can sometimes experience false breakouts, where the price briefly moves above the resistance line before reversing lower. This highlights the importance of waiting for confirmation and monitoring volume during the breakout.

Risk management: Implement proper risk management techniques, such as position sizing, setting stop-loss orders, and diversifying your trading portfolio. This helps protect against unexpected market movements and potential losses.

Additional analysis: Don't rely solely on the ascending triangle pattern for trading decisions. Supplement your analysis with other technical indicators, fundamental factors, and market sentiment to gain a comprehensive view of the market.

Related topics

Rate this article

Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 610,000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading