Ascending triangles are a chart pattern used in technical analysis. It is created by price movements that allow horizontal lines to be drawn along swing highs and uptrend lines along swing lows. The two lines form a triangle. Traders often pay attention to the breakout of the triangle pattern. Breakout can occur upwards or downwards.
Ascending triangles are often called continuation patterns because the price will usually break in the same direction as the trend that occurred sometime before the triangle was formed. Ascending triangles can because they provide clear entry points, profit targets, and stop-loss levels.
After a breakout of the triangle occurs, traders tend to aggressively buy or sell assets depending on which direction the price breaks. A minimum of two swing highs and two swing lows are required to form an ascending triangle trend line. But more trending touches tend to result in more and more trading results. As the trend lines converge with each other, if the price continues moving in the triangle for a few swings, the price action gets better, possibly leading to a stronger eventual breakout.
Volume tends to be stronger during periods than trend consolidation. Triangles are a type of consolidation, and therefore volume tends to contract during an ascending triangle. As mentioned, traders look for volume to increase on the break, as this helps ensure price is likely to continue heading in the direction of the breakout.
If the price breaks on low volume, it is a warning sign that the breakout is not strong enough. This could mean the price will move back into the pattern, which is called a false breakout. For trading purposes, entries are usually taken when the price breaks. Buy if the breakout occurs upwards, or short/sell if the breakout occurs downwards. The stop loss is placed just outside the opposite side of the pattern.