The ascending triangle pattern trading strategy is quite an interesting one.
Each time this rising triangle is formed on cryptocurrency, stocks, or forex charts, traders are kept on their toes since new highs may be attained in the market.
Therefore, this triangle can also be called a chart pattern indicator.
But let’s take it one step further and explain the ascending triangle price pattern, its success rate, and how to detect breakouts or false breakouts.
We’ll also look at the differences between the ascending triangle and flag pattern while also comparing it side-by-side with the rising wedge.
What is an Ascending Triangle?
An ascending triangle is a continuation chart pattern that consists of a static (horizontal) resistance and dynamic (sloping) support.
What do we mean?
Price within this pattern hits the same level of resistance but retraces to form higher lows at support.
Thus, you can draw an ascending triangle by placing a static trendline at resistance and rising line at support.
The image below will give you a better understanding of what the ascending triangle is.
So, is an ascending triangle bullish or bearish?
It is a bullish triangle formation because price forms higher lows into resistance, which shows that buyers are willing to buy at higher prices.
This buying pressure tends to weaken the resistance and the more price hits this resistance, the more likely it is for a breakout to occur.
You’re using a sledgehammer to hit a wall continuously and at each movement of the hammer, you’re applying more pressure to hit the wall.
An increase in power at each movement tends to weaken the wall despite its strength.
Now if you get this explanation, you understand how the ascending triangle pattern works!
It also follows that when you see this bull triangle on your chart, you can expect a breakout in the upward direction.
But not in all cases!
This is a continuation pattern where price consolidates before continuing its trend.
Hence, there can be a breakout in either direction depending on the current trend.
Ascending Triangle Pattern Probability
The ascending triangle pattern probability, success rate, or accuracy focuses on the potential for this formation to lead to a breakout in the upward direction.
Given that no chart pattern has a 100% accuracy, the same goes with this bullish triangle pattern.
On that note, the ascending triangle has a 72.77%% probability of leading to a breakout in the direction of the prevailing trend.
This percentage is quite high especially when compared to other patterns like the bull flag.
The high success rate also makes it one of the most important triangle patterns.
Nonetheless, the mere fact that this pattern does not guarantee a breakout every time it appears on your chart means that you have to put risk management in place while trading it.
It may be a bullish pattern, but it can also breakdown in the opposite direction due to other market conditions.
How to Trade the Ascending Triangle Pattern
An ascending triangle has an entry point, take profit point, and stop loss region.
These regions are what you’ll use to trade the pattern correctly.
Accordingly, here are simple steps on how to trade the ascending triangle pattern:
1. Determine the Trend:
Ascending triangles are mostly formed in uptrends.
For this reason, ensure that the market is in an uptrend (higher highs and higher lows) before trying to draw this pattern.
Time frames such as D4 and D1 will help you determine the current market trend.
2. Look for Higher Lows into Resistance:
The next thing that will enable you to spot an ascending triangle is a rising support.
Here, price is not falling back to the first level of support but making a gradual move into resistance.
Therefore, proceed to draw an ascending trendline at the lows of support (you may need to go to a time frame such as H4 to easily spot out this pattern).
Now it’s not enough that you have an ascending trendline at support since what you may have spotted is a rising channel or wedge.
Thus, make sure that price is hitting the same level of resistance (there are no higher highs or lower highs at the peak).
You can then proceed to draw a trend line at the resistance.
3. Wait for Confirmation Before Making an Entry:
Do you know you can trade the ascending triangle while it’s being formed?
You most certainly can!
The ability to do so will most be appreciated by scalpers looking to take every penny from the market.
To that effect, wait for the first two swing highs and swing lows to be formed before making an entry at the next support.
The first two swings in the image below indicate that the pattern being formed could be an ascending triangle.
This is because we have a static resistance and dynamic support.
Thus, you can use the ascending trend line to determine the next support and where to make an entry.
You’ll also be taking profit close to resistance with the help of the trend line at the top.
In addition, it’s important to note that if price breaks the support line at the third swing being formed, then it has a high probability of retracing to the support of the first swing.
This is because the neckline or support has been broken and the current pattern is now a double or triple top.
4. Trade the Breakout of the Pattern:
The longer price moves within an ascending triangle, the more likely it is to breakout of the triangle.
A breakout is likely to occur sooner than latter when there are more swings in the triangle.
You’ll notice that the distance between resistance and support is tighter.
And that’s one way to detect that a breakout is about to occur.
To trade these breakouts, make an entry once the breakout candlestick has formed completely outside the triangle.
It is important to wait for a full formation of the candle on a higher time frame to ensure you’re not trapped.
Another strategy is to wait for a price retest of the trendline or a pullback before making an entry.
If price holds at the previous resistance ( due to a greater buying pressure than the selling pressure), it can bounce from there and surge higher.
A retest and failure to hold the new support (previous resistance became support) will reduce your chances of trading false breakouts.
5. Use a Stop Loss:
An ascending triangle may be a bullish pattern but there are times it will fail to breakout.
It may end up breaking down to the support of the first swing.
That being said, place a stop loss at the lows of the ascending line to cut your losses if the breakout fails.
You’ll leave the trade early instead of being stucked in it.
Another strategy is to look for a buildup at resistance and then place your stop loss at the lows of the build up.
6. Transpose the Height of the Triangle:
It’s possible to predict how far price will surge after it has broken out of the triangle.
To do this, you need to draw a vertical line from the start of the triangle and then transpose the height of the triangle onto the resistance.
Transposing and calculating the take profit region will also enable you to determine your risk to reward before trading a breakout from the pattern.
How to Detect Ascending Triangle Breakout
We’ve hinted on breakouts in the previous section but you may still be wondering, “what is an ascending triangle breakout?”
If that’s the case, a breakout denotes when price leaves a region of consolidation and surges higher or lower (breakdown).
This breakout is often accompanied with a sharp increase in momentum since volatility reduces as price consolidates to form a pattern.
To detect breakouts from ascending triangle pattern:
- Wait for the price to close above the resistance line.
- Check the MACD histogram or volume indicator for an increase in momentum. Our guide on how to use MACD will help you here.
Here’s an example of a breakout from an ascending triangle pattern
Differences Between Flag Pattern and Ascending Triangle
The differences between flag pattern and ascending triangle are:
1. Direction of the Trendlines:
A bull flag pattern is also a bullish continuation pattern, however, it has descending trend lines at its support and resistance.
This formation differs from that of the ascending triangle, which has a static trend line at resistance but an ascending line at support.
Nonetheless, the direction of breakout for both patterns is to the upside.
There’s also the bear flag pattern which is a bearish continuation formation.
2. Time Taken for Consolidation:
Both patterns indicate that price is consolidating before continuing its trend.
However, it takes price less time to breakout of a bull flag than an ascending triangle.
Bull flags are often created when price is rallying and taking a short rest before surging further.
Hence, price may leave the pattern sooner compared to an ascending triangle that could take days or weeks depending on the market’s volatility.
Differences Between Ascending Triangle Pattern vs Rising Wedge
Let’s also compare the ascending triangle pattern vs rising wedge to enable you spot out their similarities and differences.
1. Direction of the Trend Lines:
A rising wedge has two ascending trend lines where the support’s line is steeper than that of resistance.
That is, price is making higher highs and higher lows in this pattern but the lows are not rising at the same pace as the resistance.
On the other hand, only the support line of the ascending triangle rises but its resistance is static.
2. Direction of the Breakout:
A rising wedge is a bearish pattern since price breaks down instead of breaking out.
This breakdown can be tied to the overstretched price or selling pressure being higher than the buying pressure.
In contrast, price often tends to breakout of the ascending triangle.
You too can use the ascending triangle pattern trading strategy to improve the way you trade as a beginner or professional trader.
Simply learn the basics outlined in this guide and practice how to detect breakouts early.
Doing so, will save you from acquiring losses in the short and long run.