Market analysts rely on many technical indicators to anticipate future trends, one of which is the very popular ascending triangle chart pattern.
What is an ascending triangle pattern?
As the name implies, an ascending triangle forms on a chart when price consolidates between rising trendline support and horizontal trendline resistance.
The pattern usually appears during persistent uptrends or downtrends. Most technical analysts see it as a "continuation pattern", which means that the general market trend is likely to resume.
For example, Bitcoin (BTC) The price chart above shows that the BTC/USD trading pair forms an ascending triangle pattern between April 2020 and July 2020.
BTC price breaks out of the triangle range in late July to the upside, returns to retest the pattern's resistance trend line as support in September for further bullish confirmation, resuming its uptrend.
However, the ascending triangle is not always an indicator of bullish continuation, particularly in bear markets. For example, its appearance during the 2018 bear market preceded further downside, as shown by Ether (ETH) price table below.
There are also cases where ascending triangles have signaled the end of bear markets. One is the formation of the Ethereum triangle between March 2020 and April 2020, which led to a trend reversal to the upside, as shown below.
So given these variations in outcome, how do traders use this chart pattern to help reduce risk and better prepare for the next move? Let's take a closer look.
How to trade an ascending triangle pattern?
The ascending triangle has a widely tracked measurement technique that could help traders identify their profit targets following a breakout or breakout.
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The target in an uptrend is measured by taking the maximum distance between the upper and lower trend line of the triangle and then adding the distance to the upper trend line. The same applies to ascending triangle reversal setups.
Conversely, the profit target in a downtrend is obtained by measuring the distance between the upper and lower trendline of the triangle. Then add the result to the breakout point on the lower trend line.
Beware of fakes
The ascending triangles have 72.77% success rate to meet their profit targets, which means that counterfeits are certainly possible.
Some clues can be obtained by checking the attached trading volume. A rally is often seen as a sign of strength. Conversely, a flat volume trend suggests that the breakout or breakdown may not have enough momentum.
Wearing stop loss On the opposite side of the trend there is also another tool that traders can use to reduce risk in a possible breakout or ascending triangle breakout scenario. In other words, traders can exit their positions with a smaller loss if the trend reverses before reaching their technical profit target.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
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