An ascending triangle pattern is a technical analysis chart pattern used in trending markets to signify a bullish continuation. The ascending triangle pattern involves a horizontal resistance trendline and a bottom-rising trendline.
An ascending triangle pattern forms when the price of a currency pair forms lower highs and fails to break a resistance level. Price fluctuates and volume decreases within the range between the upper and lower trendlines of ascending triangles as the lines narrow and look to converge.
Forex traders look for entries in rising triangle patterns when an increase in volume confirms the breakout.
The benefits of ascending triangle patterns are that they provide a reliable continuation signal, clear entry and exit points, they are easy to identify, and they offer volume confirmation to avoid false breakouts.
The downsides of the ascending triangle pattern include the risk of false breakouts, subjectivity when analyzing and drawing ascending triangles, difficulty in timing entries, and volume confirmation challenges.
What is an Ascending Triangle Pattern?
An ascending triangle pattern is a bullish continuation chart pattern that forms when an asset’s price repeatedly tests an upper horizontal resistance trendline and a lower upward-sloping support trendline. The ascending triangle pattern indicates that buyers are gradually gaining strength as they push prices higher but face resistance at specific resistance prices. Ascending triangle patterns create a triangle-like shape when price action narrows, and the support and resistance trend lines converge.
The ascending triangle pattern occurs on various financial asset price charts, including stocks, currency pairs, and commodity price charts. Technical analysts interpret the ascending triangle chart pattern as an increase in demand for an asset as it forms higher lows and a decrease in supply as prices approach the equal high price level.
The ascending triangle meaning in stocks and other assets’ charts is that the market lacks enough momentum to break through the resistance area, despite bulls continuing to buy the assets on each dip, leading to higher lows.
Ascending triangle pattern is one of the basic forex terms indicating that the price of a currency pair is likely to continue going up. Traders use upside breakouts from the ascending triangle pattern as potential entry points to place buy orders.
The ascending triangle pattern is often confused with the rising wedge pattern because they both have a rising lower trendline.
Is Ascending Triangle and Rising Wedge Patterns the same?
No, the ascending triangle and rising wedge patterns are not the same. The difference between the ascending triangle and a rising wedge pattern is that the ascending triangle has a horizontal top trendline indicating resistance and an upward-sloping bottom trendline while rising wedge patterns have both top and bottom trend lines sloping upwards but converge as the pattern progresses.
The ascending triangle pattern often forms during mid-trend and appears as a consolidation. A rising triangle pattern suggests that the price action is bullish and will break out upwards as a continuation of the trend.
The rising wedge pattern often forms at the end of a bullish trend and appears as a narrowing range of higher highs and higher lows. The rising wedge low trendline is usually steeper than the top trendline, indicating weakening buying pressure and increasing selling pressure. A break below the lower trendline in a rising wedge indicates a bearish move or trend reversal.
Traders looking for entries on “ascending triangle vs. rising wedge” take trades at similar price levels, usually where the price breaks out of the top or bottom trendline. The traders typically set the stop-loss orders just below the low or high of the breakout candle.
How does the Ascending Triangle Pattern work?
The ascending triangle pattern follows four rules to be valid and work. First, the market must be in an existing uptrend. Secondly, at least two highs must be in contact with the upper horizontal resistance and two lows with the lower sloping support trendline. Thirdly, the volume should reduce during the formation of the pattern and increase during price breakout. Finally, the ascending triangle pattern should develop over a reasonable period, usually a few weeks to months.
Ascending triangles begin when a market is in a sustained bullish or rising trend, making higher highs and higher lows. A horizontal resistance level forms when the market reaches a level where the price fails to break through after multiple attempts. Price bounces between testing the resistance level and the ascending trendline formed from a series of higher lows.
Volume decreases during the formation of the ascending triangle pattern, initiating a period of consolidation. An ascending triangle breakout occurs when the price breaks out of the upper horizontal trendlines, signaling the completion of the pattern. Traders wait for a volume increase to confirm the ascending triangle breakout and avoid a false breakout (where the price breaks out of the resistance range and then drops back to consolidation).
Reliable ascending chart patterns usually form within weeks to a few months and could last for around three months before experiencing a breakout. The fractal nature of financial markets means that ascending triangles form in shorter time frames like seconds and minutes charts, however, ascending triangle patterns formed on lower time frames are more likely to fail compared to those formed on higher time frames like hourly, four-hourly, and daily.
An example of ascending triangle pattern formation is shown below.
What is the Target of the Ascending Triangle Pattern?
The target of the ascending triangle pattern in forex trading is determined by the height of the triangle, which is the vertical distance in pips between the upper horizontal resistance line and the lowest point of the bottom rising trendline. Forex traders estimate this range and add the height of the triangle from the breakout point, making it the first target or take-profit level.
The stop-loss order is placed below the most recent low within the pattern or just below the upward-sloping trendline. The stop-loss and take-profit targets are not guaranteed price levels that the price will reach. Ascending triangle pattern targets are subject to market conditions, and traders have to adjust their targets to avoid incurring losses.
Combining ascending triangle breakouts with other technical indicators like support and resistance and volume analysis ensures that traders achieve more accurate price targets and avoid false price breakouts.
How long does it take for the Ascending Triangle Pattern to form?
The ascending triangle pattern takes anywhere from 5 to 20 days to form on a short-term timeframe and between 2 to 6 weeks on intraday time frames. The ascending triangle pattern averages 4 to 12 weeks to form on higher time frames like the daily chart. The actual duration for the formation of an ascending triangle varies depending on market volatility, trading volume, and timeframe.
Ascending triangle formation takes time because it requires the price to form at least two higher lows and two tests of the resistance level. High market volatility and an increase in trading activity often accelerate how fast the ascending triangle pattern forms. Low volatility and low trading activity signify low market volume, leading to a longer formation period for ascending triangle patterns.
Statistics show that, on average, the Ascending Triangle chart pattern forms in a maximum of 90 days, or three months, after which a breakout occurs. The closer the ascending trendline comes to meeting the horizontal resistance line, the more likely a breakout is to occur.
Traders have to practice patience as they wait for breakouts and may need to adjust their strategy to accommodate the long formation period experienced when trading the ascending triangle pattern.
Is volume significant to Ascending Triangle formation?
Yes, volume is vital when trading the ascending triangle formation. Volume usually decreases in the initial stages of the ascending triangle formation as a result of profit-taking from buyers who were long in a bullish trending market. The volume decrease signifies the start of the consolidation or indecision phase in the market and provides opportunities for scalpers and day traders to open counter-trend short positions and take advantage of the price correction.
A sudden increase in market volume as the price breaks out of the horizontal resistance trendline is an important confirmation of a valid ascending triangle breakout. The lack of a corresponding volume increase when the price breaks out of the ascending triangle’s resistance level results in a higher chance of a false breakout.
Low volume during the ascending triangle formation shows that the ascending triangle pattern is weak and may take a long time before a breakout occurs. Traders use volume when trading ascending triangle formations as confirmations to trade breakouts or indicators of genuine consolidation phases.
How does the Ascending Triangle Pattern differ from other Triangle Patterns?
The ascending triangle differs from the other triangle chart patterns, the descending triangle pattern and the symmetrical triangle pattern, in the shape of the trendlines and the direction of their breakouts. The ascending triangle pattern involves a horizontal upper trendline and a sloping lower trendline, followed by a bullish breakout signaling trend continuation.
The descending triangle pattern is the direct opposite of the ascending triangle pattern. A descending triangle pattern involves a horizontal lower support trendline and a sloping higher trendline, forming a triangle shape that narrows downward. The descending triangle is a bearish continuation pattern, suggesting that the price is likely to continue lower.
The symmetrical triangle pattern involves two trend lines that converge towards each other, with the upper trendline sloping downward and the lower trendline sloping upward. Symmetrical triangle patterns indicate a consolidation phase where buyers and sellers are in equilibrium, making them neutral indicators. Symmetrical triangle breakouts could be bullish or bearish, depending on the prevailing market conditions and investor sentiment.
Each of the triangle pattern types has specific features and characteristichs that need to be evaluated.
Is the Ascending Triangle Pattern a common Forex Chart Pattern?
Yes, the ascending triangle pattern is a common forex chart pattern because it is easy to identify and draw on a forex chart. An ascending triangle pattern occurs in trending markets and is visible once the price begins consolidating around a resistance zone. Traders prefer the ascending triangle pattern because it provides straightforward targets and stop-loss levels, making it easier for novice traders.
High liquidity in the forex markets ensures that price movements are well-defined, allowing for the smooth formation of forex chart patterns, including the ascending triangle pattern.
Traders look at the ascending triangle pattern when determining market trends and predicting potential breakout levels to ensure precise entries and exits for their positions.
How to use the Ascending Triangle Pattern in Forex Trading?
Here is how to use the Ascending Triangle Pattern in Forex Trading:
- Identify the Pattern: Look for an ascending triangle pattern forming on the price chart. The pattern consists of a horizontal resistance trendline connecting multiple swing highs and an ascending support trendline connecting higher lows.
- Confirm the Pattern: Identify the ascending triangle pattern and wait for confirmation before taking action. Confirmation includes observing multiple touches on each trendline and decreasing trading volume as the pattern develops.
- Wait for the breakout: Look for a breakout above the horizontal resistance trendline. Ensure that price and candlesticks close above the resistance with an above-average volume as the confirmation. Impatient traders may set alerts on the trading platform to help them stay prepared as the price approaches the resistance line.
- Place a trade: Open a buy order when the breakout is confirmed, or wait for the price to retest the breakout level (horizontal resistance trendline) before continuing upward.
- Set stop-loss and take-profit: Place a stop-loss order below the resistance line or the latest low for a tighter stop loss or below the first lowest low for a larger stop loss. Next, measure the vertical distance between the upper and lower trendlines at their widest points. Add this height to the breakout price to get a potential target price (take-profit) for the upward move.
- Exit the trade: Monitor the trade and adjust the stop loss to lock in profits, and watch out for reversals or failed breakouts. Close the long position once the price reaches the target price or when market conditions change.
How to Identify the Ascending Triangle Chart Pattern?
To identify the ascending triangle chart pattern, look at the shape formed by the two trend lines and verify their converging pattern, then check the market volume fluctuation to confirm any breakout. The ascending triangle chart pattern forms in the middle of an uptrend market and features a resistance area that leads to a consolidation phase or market correction.
Consider the shape formed by the horizontal resistance line and the upward-sloping trendline by identifying a series of peaks that reach roughly the same price level but fail to break out and connect them using a trendline. Price needs to test a resistance level at least twice to confirm that sellers are constantly stepping in at that price level. Connect a series of higher lows to form the lower upward-sloping trendline of the ascending triangle pattern.
Verify the convergence of the horizontal resistance line and the bottom upward-sloping trendline to ensure that they form a triangle shape. Price in ascending triangle patterns is squeezed between the upper trendline and the rising lower trendline as the range narrows over time.
Check the volume patterns in the ascending triangle, looking for decreasing volume levels as the pattern forms and a surge in volume during breakouts.
Ascending triangle breakouts are usually associated with a surge in volume as the confirmation for the break above the upper horizontal resistance line. Breakouts occurring in higher time frames provide stronger confirmations compared to intraday resistance trendline breaches.
Is Identifying Ascending Triangles with Forex Broker easier?
Yes, identifying ascending triangles is easier with Forex brokers because they provide tools like advanced charting software, automated pattern recognition tools, custom indicators and scripts, alerts and notifications, educational resources, and historical data for backtesting.
Forex brokers provide advanced charting softwares that include trendlines, indicators like MACD and RSI, and volume analysis indicators, making it easier for ascending triangle traders to spot the formation.
The “forex broker meaning” in trading allows them to offer automated pattern recognition tools on their platforms that identify the ascending triangle among other chart patterns in real time. Other brokers support custom indicators and scripts that help traders identify the ascending trendline quickly.
Broker features, like the alerts when the price breaks out of the horizontal resistance line, and the access to large volumes of historical data, help traders refine their approach to ascending triangles and improve their trade executions.
Is it possible for the Ascending Triangle Pattern to be bearish?
Yes, it is possible for an ascending triangle pattern to be bearish, according to Corey Rosenbloom’s “The Complete Trading Course.” While ascending triangles often break to the upside, the contraction or expansion occurring during the ascending triangle pattern formation does not reveal whether the breakout will be bullish or bearish.
Markets tend to move faster in bearish ascending triangle pattern breakouts because buyers are forced to sell their orders and experience unexpected stop-outs as prices decline against their positions. The entry of new short-sell positions in the market further creates a positive feedback loop that propels the price to reach the unexpected downside targets.
When do Forex Traders use the Ascending Triangle Pattern?
The Ascending Triangle pattern can be used in forex trading to identify potential bullish continuation signals, trade consolidation breakouts, spot potential trade reversals or pullbacks, and set clear entry, stop-loss, and take-profit levels. Forex traders combine the ascending triangle pattern with other technical or fundamental factors to increase the reliability of a setup.
Forex traders use the ascending triangle pattern when identifying trend continuation in currency pairs that are in a strong uptrend. The ascending triangle pattern shows higher lows on the forex charts during the consolidation phase, suggesting buying pressure in the market and that the market will soon turn bullish.
Forex traders use ascending triangle patterns when confirming the end of a consolidation once the price breaks out of the resistance trendline. The traders then open long positions if the price breaks out of the horizontal resistance trendline with increased volume, which acts as a confirmation for the trade.
Forex traders use the ascending triangle pattern when identifying potential reversal points in bearish markets and potential pullback levels in bullish trending markets. Traders use the pullback and reversal points to position their trades effectively and achieve better entries.
A disciplined “forex trader meaning” involves using the ascending triangle pattern to manage risk by setting stop-loss orders below the horizontal resistance line and using the ascending triangle’s height to set profit targets.
What are the Statistics for the Ascending Triangle Pattern?
The statistics for the ascending triangle pattern show a success rate of 70-85% for bullish breakouts in the prevailing market trend, with an average move of 35-46% after a breakout. The success rate for bearish breakouts of the ascending triangle pattern is between 20-30%, with an average move of 21% after the breakout, according to investor Thomas Bulkowski’s research in “Encyclopedia of Chart Patterns.”
Ascending triangle patterns with a breakout accompanied by high volume have a higher probability of success. The study shows that the ascending triangle pattern is more reliable when it appears in an uptrend, and the breakout occurs above the horizontal resistance level.
Traders experience a higher likelihood of taking successful trades, rising from 68% to 85%, if they wait for a retest of the resistance level to take trades, according to Thomas Bulkowski.
There are no universally agreed-upon data on the success rate or failure rate of ascending triangle patterns. The information received by most traders depends on the researcher’s process and the scope of their backtesting data.
Is the Ascending Triangle Pattern accurate?
Yes, the ascending triangle is considered accurate by many traders because of its high success rate close to 80%, and low fail rate under 20%, in bullish market conditions. Traders who wait for retests of the resistance trendline before placing trades experience even higher accuracy (just under 90%), according to research by Thomas Bulkowski, making the ascending triangle pattern among the most popular for traders.
There are other conflicting results about the accuracy of the ascending triangle pattern with studies like Golovko, A. (2013). ‘Foreign Exchange Rate Movement Prediction Using Triangle Chart Patterns and Artificial Neural Networks’ observing that the accuracy of ascending triangle pattern stands at just 40%. The vast difference between these studies could be a result of using different rules when defining the ascending triangle pattern.
What happens when the Ascending Triangle fails?
When the ascending triangle pattern fails in forex trading, it typically results in a failed breakout. A failed breakout in ascending triangles happens when the price breaks above the horizontal resistance trendline, then retraces to the triangle to keep consolidating or reverses and begins a bearish move. Failed ascending triangles are often caused by factors such as low market liquidity or market exhaustion, economic data releases, and geopolitical events like wars.
Bullish momentum weakens when the ascending triangle fails, meaning that the upper horizontal resistance line may be stronger than expected. Ascending triangles that fail experience decreased volume, especially near the resistance trendline, indicating that bullish pressure is diminishing.
Forex traders respond to failed ascending triangle patterns by placing stop-loss orders on all their positions. Stop-loss orders prevent heavy losses that could be incurred in cases of false breakouts that turn out to be the beginning of a new bear market. Other traders and investors choose to close their losing positions immediately after the ascending triangle fails and reopen short orders to align with the new trend.
When ascending triangles fail, the best option for traders is to tighten their risk management using stop orders or position sizing and to wait for breakout confirmation before taking any trades.
What is an example of an Ascending Triangle in Trading?
An example of an ascending triangle in trading involves a currency pair like EUR/USD. A forex trader may notice that the price of EUR/USD is consistently forming higher lows while encountering resistance at the same price level, say 1.1200. Price hits this level multiple times but fails to break through, so the trader draws a horizontal line connecting the series of the relative equal highs around the 1.1200 level.
The trader draws a trendline connecting the series of higher lows (e.g., 1.1050, 1.1100, 1.1150), resulting in an upward-sloping trendline. An ascending triangle pattern is now formed, and the trader monitors the volume decreases as the pattern forms, anticipating that volume will spike upon breakout.
The trader prepares to open a buy position if the price breaks out above the resistance level at 1.1200 with a significant increase in volume, confirming the breakout and then retraces back, retesting the breakout level. The trader sets a stop-loss order just below the last higher low, say at 1.1150, to manage risk.
Upon breakout and successful retest of the 1.1200 level with increased volume, the trader enters a buy position. The trader sets a profit target based on the height of the triangle added to the breakout point. In this case, if the height is 150 pips, the target would be 1.1350. The trader closely monitors the trade, ready to adjust their stop-loss to breakeven once the price moves favorably, securing gains as the price reaches the profit target.
What are the Benefits of Ascending Triangle Patterns in Forex Trading?
The benefits of ascending triangle patterns in forex trading are listed below.
- Bullish Continuation Signal: Ascending triangle patterns have a high success rate when indicating bullish continuation signals in an existing uptrend, providing trend-following traders with high probability setups.
- Clear Entry and Exit Points: Ascending triangle pattern provides a defined breakout level and clear entry and exit points, making it easier for traders to manage risk and set stop-loss and take-profit levels.
- Easy to identify: Ascending triangle pattern has a distinct shape with a horizontal resistance line and an upward-sloping trendline, making it relatively easy to identify, even for a beginner.
- Volume Confirmation: Ascending triangle breakouts accompanied by significant volume increase the reliability of the pattern and provide a way for traders to differentiate between genuine and false breakouts.
- Versatility: Traders use the ascending triangle pattern across different timeframes, from intraday charts to weekly charts, making it suitable for all traders, including day traders, swing traders, and longer-term investors.
- Integration with Other Analysis Tools: Ascending triangle patterns are easy to combine with other technical indicators such as RSI, MACD, moving averages, and support/resistance levels to increase the accuracy of trading signals.
- Better trading discipline: Ascending triangles encourage traders to base their decisions on objective criteria rather than emotions or hunches, leading to improved trading discipline and potentially more informed trading choices.
What are the Downsides of the Ascending Triangle in Forex trading?
The downsides of the ascending triangle in forex trading are listed below.
- False Breakouts: Ascending triangle pattern traders risk facing multiple false signals that lead to losses due to the prevalent false breakouts, where the price temporarily breaks out of the resistance zone and then reverses direction.
- Subjectivity: Forex traders draw ascending triangles differently depending on what they deem to be a horizontal resistance or a higher low. This subjectivity results in inconsistent decisions and outcomes.
- Confirmation Challenges: Traders often misinterpret volume, exposing traders to false breakouts and bad entries. The decentralized nature of the forex market makes it hard for traders to receive accurate volume data.
- Market Conditions: Ascending triangle pattern is usually more reliable in bullish and trending markets. Traders may experience more losses trading ascending triangles in ranging or bearish markets.
- Whipsaws or volatility: Ascending triangle pattern is affected by high volatility, which leads to wide price fluctuations and whipsaws, resulting in more false breakout signals.
- Timing issues: Ascending triangle patterns take time to form, and waiting could result in entering the trade too late or missing the initial and most profitable part of the move.
- Limited price targets: Traders using the measured move technique, where traders measure the height of the ascending triangle to find targets, sometimes end up underestimating the potential profits.
What is the difference between an Ascending Triangle and a Pennant Pattern?
The difference between an ascending triangle and pennant pattern lies in their formation shape, breakout expectation, and timeframe of formation. Ascending triangles feature an upper horizontal resistance line and an upward-sloping trendline, which converge to form a triangular shape, while a pennant pattern resembles the symmetrical triangle or flag pattern, with both the upper and lower trendline sloping upward slightly before converging.
The ascending triangle and the pennant pattern are both continuation patterns, even though the ascending triangle is expected to remain bullish or direction neutral until the price breaks through the horizontal resistance line. Pennant pattern breakout direction often follows the direction of the preceding trend, either bullish or bearish.
The ascending triangle takes longer to form, usually weeks to months, while the pennant pattern only takes a few days to form.