What Is Ascending triangles?
Ascending triangles are chart patterns used in technical analysis. They are formed by price action that allows a horizontal line to be drawn along the swing highs and an upward trendline along the swing lows. These two lines form a triangle.
Traders often look for breakouts from this triangle pattern. Breakouts can occur to the upside or downside. Ascending triangles are often referred to as continuation patterns because price will usually break in the same direction as the trend that was in place before the triangle formed.
Ascending triangles are useful because they provide clear entry points, profit targets, and stop-loss levels. Once a breakout occurs, traders tend to buy or sell the asset aggressively depending on the direction of the price movement. A minimum of two swing highs and two swing lows are required to form an ascending triangle trendline.
The more trendlines touch, the better the trading outcome is likely to be. As the trendlines come closer together, if price continues to move within the triangle for several swings, the price action becomes more favorable, potentially resulting in a stronger breakout.
Volume tends to be lower during periods of trend consolidation. Triangles are a type of consolidation, so volume tends to decrease during the formation of an ascending triangle. Traders look for increased volume on breakouts, as this helps ensure that price is likely to continue moving in the direction of the breakout.
If price breaks out on low volume, this is a warning sign that the breakout was not strong enough. This could mean that price is going back into the pattern, which is called a false breakout.
For trading purposes, entry is usually made when price breaks out. Buy if the breakout is to the upside, or short if the breakout is to the downside. Stop losses are placed just beyond the opposite side of the pattern.
That was the topic of the discussion about ascending triangles in trading. You can also read other collections of articles on INDODAX Academy.
