The Ascending Triangle is a bullish continuation chart pattern commonly observed in technical analysis. One could say the Ascending Triangle is Technical Analysis 101.
It occurs during uptrends and is characterized by a series of higher lows (ascending trendline) and a horizontal resistance level that gets "hit" as resistance more than once. Typically you will look for this pattern to identify potential buying opportunities, as it suggests that the price is likely to continue its upward movement after a brief consolidation phase.
I use this pattern mostly on bigger charts, like the 4 hour, to help with market structure, look for breakouts, failed break outs and areas that are likely to be choppy.
Lets go a bit further on the detailed breakdown of the Ascending Triangle pattern:
Uptrend: Before an Ascending Triangle forms, there must be a clear uptrend. The market has been making higher highs and higher lows, indicating bullish sentiment.
Higher Lows: As the uptrend continues, the price action will create a series of higher swing lows. These lows are connected by a rising trendline, forming the lower boundary of the triangle. This trendline represents the support level, and it shows that buyers are willing to step in and support the price at progressively higher levels.
Horizontal Resistance: While the price is forming higher lows, there will also be a horizontal line (resistance level) that connects the highs in the uptrend. This horizontal line acts as somewhat of a barrier, where sellers are preventing the price from moving higher temporarily.
Convergence: As the pattern develops, the price action causes the ascending support trendline and the horizontal resistance level to converge. This creates a triangle-like shape on the chart, hence the name "Ascending Triangle."
Decreasing Trading Range: As the price approaches the apex of the triangle (the point where the support and resistance lines converge), the trading range between the highest and lowest prices tends to decrease. This narrowing range indicates a decrease in volatility and a potential imminent breakout (or false break out)
Breakout: The breakout is the crucial moment in the pattern. Traders wait for the price to break above the horizontal resistance level. When this occurs, it is considered a bullish signal and suggests that the buying pressure has overcome the selling pressure, leading to a potential continuation of the uptrend. Almost every breakout will be retested. In this case, the next 4 hour candle gave an opportunity for a retest of the horizontal resistance area. This is not always the case. A retest of the breakout area may take days, weeks or even months.
Target: To estimate the potential target of the breakout, you can measure the height of the triangle at its widest point (from the initial high to the trendline) and add that distance to the breakout point. This gives you a rough target for the price move after the breakout. Larger Ascending Triangles typically will have higher targets.
Here is another picture of the same chart, but with another Ascending Triangle that formed in the following month.
Please note, not all breakouts are created equal. The market loves to trap, and failed break outs are in play as well. Thus level to level trading is imperative, along with a defined stop loss.
Remember that trading patterns, including the Ascending Triangle, should be used in conjunction with other technical and risk management tools to make well-informed trading decisions. Patterns can be subjective and may not always play out as expected, so risk management and proper position sizing are crucial in trading futures or any other financial instrument.
Trade Well at FNL!!