The Ascending Triangle Chart Pattern: Know How To Trade It

Picking the right stocks and identifying trading opportunities are two important aspects of a profitable trading experience. A knowledgeable and experienced trader often knows how to take advantage of both situations, i.e. when the market is seeing an upward trend and when it is following a downward trend. An ascending triangle chart pattern is one such tool for technical analysis of stocks , significant during an upwards market trend.Let’s look at what is an ascending triangle chart pattern and how it helps investors while deciding upon the entry point for a stock.

Ascending triangles are bullish patterns that signify that the prices may rise further as the pattern completes itself. The triangle is formed by two trendlines. The upper trendline is flat, which acts as a resistance point.The second trend line that shows price support, connects consecutive higher lows, thus forming a rising trend. The bullish characteristic of the triangle is derived out of the lower, rising trendline. The triangle starts taking its form once the market enters the consolidation phase. When the prices move out of the triangle to follow the overall trend, you can observe a completed pattern.

The ascending triangle pattern is formed when a stock's price rises back and forth between the two trendlines. The prices move up to meet the resistance level that again leads to the downfall of the prices as stocks are sold. The prices may fail to cross the resistance level few times, but the sellers remain unaffected by this. Eventually, the price bounces beyond the resistance level and continues to follow the uptrend.If an ascending triangle pattern appears when the prices are already following an uptrend, it is viewed as a consolidation pattern in continuation. But if the ascending triangle appears when the overall market is following a downtrend, it indicates a possibility of the market trend changing to an upward trend.

When the prices move beyond the top of the pattern or below the lower trendline, it is called a breakout. When the prices breakout from the ascending triangle, the traders make buying or selling decisions depending on the direction of the price breakout.

• While trading in ascending triangle chart patterns, an entry is generally made when the price makes a breakout. You must buy if the breakout occurs on the upper side and sell if the breakout occurs on the lower side.
• A stop-loss must be placed just outside the triangle pattern on the side opposite to that of the breakout occurrence. For example,if you buy on the breakout at the upper side, you must place a stop-loss at the point just below the lower trendline.

For calculating the profit targets, the triangle height at the thickest point is taken and added or subtracted from the point of breakout price. If the breakpoint is on the upper side, the triangle height is added to the breakout price to get the target price. Similarly, if the breakpoint is on the lower side, the triangle height is subtracted from the breakout price to arrive at the target price.

While the ascending triangle pattern is useful while assessing the probable trend continuation, it comes with some disadvantages too. As a trader, you must be aware of both, to manage your risks accordingly. The major concern with the triangle patterns is the occurrence of false breakouts.The prices may sometimes move out of the pattern for a short while and then move back. Also, the prices may break out on the other side as well. The prices here may go beyond the trendlines sometimes but fail to generate momentum in the breakout direction.Traders must be cautious while making a trade entry before the breakout happens because sometimes the triangular pattern may not form completely or move downwards. It is better to wait for a confirmation on the breakout before making a trade entry.

Remember that patience is the key to using triangular patterns. While these patterns can provide meaningful insights into the situation, the stock market is highly volatile, and the exact predictions are hard to make. Hence you must be careful while entering the trade or taking a position in the market.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.