Hello dear friends.
To achieve stable performance in
financial markets, we should combine fundamental and technical analysis. Not
only should we constantly monitor market news, but we should also conduct
consistent technical analysis. Chart patterns, which are part of technical
analysis, are among the most valuable tools for traders. Chart patterns enable
traders to better follow changes in the market and thus allow them to manage
their positions. Today, I will try to provide information about the
"Ascending Triangle" pattern that you can use to improve your
trading.
What is the Ascending Triangle Pattern?
The Ascending Triangle is a neutral chart pattern that forms
in an uptrend. This pattern usually occurs during a bullish trend and many
people think that the trend will continue, so some traders define it as a
continuation pattern. However, although the Ascending Triangle pattern mostly
signals the continuation of the uptrend, sometimes it can also signal a
reversal of the trend. For this reason, it is considered a bilateral pattern.
Everything depends on the direction of the breakout. If the price breaks out to
the upside, the trend continues. On the other hand, if there is a downside
breakout, the trend may experience a reversal.
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| The Ascending Triangle Pattern |
How is the Ascending Triangle Pattern Formed?
The Ascending Triangle pattern is named for its resemblance
to a triangle on the price chart. This pattern forms as prices move between a
horizontal upper trendline and a rising lower trendline. A triangle shape forms
between these two lines. The horizontal line represents the resistance level
that the price struggles to reach, while the rising line connects rising low
points.
- Flat Upper Line: The top part of the pattern shows price movements that create the illusion of a straight horizontal line, as if there is a solid resistance level at that point. The inability of prices to break above this line establishes it as a resistance level. The upper line connects multiple price peaks to form an imaginary line. The slope of this imaginary upper line is zero, meaning it is horizontal.
- Rising Lower Line: As prices fluctuate, the resulting lows always form at levels higher than the previous ones. Connecting these rising low points creates a rising lower trendline. Since prices do not drop below this lower trendline, it acts as a support level. This lower line has an upward slope within the pattern, meaning its slope is positive.
Prices moving back and forth between the lower and upper
lines create the triangle shape. During this process, prices can fluctuate
within a specific range and get squeezed between the support and resistance lines. The support level represents a line that stops or slows down the price
from falling, while the resistance level represents a line that stops or slows
down the price from rising.
How to Trade the Ascending Triangle Pattern?
The Ascending Triangle pattern usually indicates either a
continuation of an upward trend or a reversal signal. The direction in which
prices will move is determined by the breakout point. If the price breaks above
the resistance level, signaling an upward breakout, the trend continues, and
long positions are favored at this point. If the support line breaks down, the
trend may reverse or experience a pullback for a while, and in this case, short
positions may be preferred. Confirmation of the breakout occurs with a
full-bodied candle closing below the support level or above the resistance
level following the breakout.
When the price breaks above the upper line, it is usually
considered a buying opportunity, and trading can be done at this point. A
breakout with low trading volume may indicate that not all market participants
accept this breakout, and therefore, the price may revert back. However, an
increase in trading volume at this breakout point makes the buying transaction
more reliable. Therefore, when the upper line (resistance line) is broken with
an increase in trading volume, a buy order can be placed.
- Entry (Buy): The entry point for buying can be determined near the breakout level of the upper line or after a rapid pullback following the breakout.
- Stop Loss: The stop loss order can be placed slightly below the bottom line (support line) of the triangle.
- Target: The target price is often calculated by moving upward by the height of the triangle. Additionally, Fibonacci levels or other technical analysis tools can also be used for setting targets.
Below, you can see an example of a trade made with the
Ascending Triangle pattern in the chart. The Chinese Yuan/Indian Rupee
(CNH/INR) currency pair formed an Ascending Triangle pattern on the daily
chart, and prices continued their ascent by breaking above the upper line
(resistance level):
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| Ascending Triangle on the CNH/INR chart |
When the price falls below the rising lower line (support line), this is generally considered a sell signal, making trading at this
point attractive. This breakdown could indicate the
end of the uptrend and a reversal of prices to the downside. In this case, an
increase in trading volume can indicate that the breakdown is a more reliable
signal. A high trading volume indicates that more traders have noticed this
breakdown and are trading accordingly. This increases the chances of the price
continuing its downward movement. Therefore, when the price breaks below the
lower trendline and an increase in trading volume is observed, this situation
can be considered a selling opportunity.
- Entry (Sell): A sell order can be placed when the price breaks below the rising lower line (support line).
- Stop Loss: The stop loss order can be placed slightly above the upper line (resistance line) of the triangle.
- Target: The target price can usually be calculated by moving downward by the height of the triangle. Additionally, risk-reward ratios, moving averages, Fibonacci levels, or other technical analysis tools can also be used for setting targets.
When you examine the chart below, you encounter a trading
example utilizing the Ascending Triangle pattern. The Euro/US Dollar (EUR/USD)
currency pair formed an Ascending Triangle pattern on the daily chart and broke
below the lower line (support level), indicating a trend reversal:
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| Ascending Triangle on the EUR/USD chart |
Remember: There is always uncertainty and risks involved in financial trading. Like other technical analysis patterns, the Ascending Triangle can provide false signals and should not be used alone. Therefore, applying risk management principles is essential when trading. It is preferred to use it in conjunction with other technical analysis tools and indicators to reduce risks and increase profitability while determining trading strategies.