Market analysts rely on various technical indicators to predict future trends, and one widely used pattern is the ascending triangle on a chart.
What does an ascending triangle pattern mean? Well, as the name suggests, it forms when the price consolidates between a rising trendline support and a horizontal trendline resistance.
This pattern typically appears during consistent uptrends or downtrends and is often seen as a “continuation pattern,” indicating that the overall market trend is likely to continue.
For example, let’s look at the BTC/USD three-day price chart above. From April 2020 to July 2020, the BTC/USD trading pair formed an ascending triangle pattern. In late July, the BTC price broke out of the triangle range to the upside. In September, it retested the pattern’s resistance trendline as support, further confirming the bullish trend.
However, it’s important to note that the ascending triangle isn’t always a reliable indicator of bullish continuation, especially in bear markets. Take a look at the ETH/USD three-day price chart below. During the 2018 bear market, the ascending triangle pattern appeared before more downside.
But there are instances where ascending triangles signal the end of bear markets. Look at the ETH/USD daily price chart below. Ethereum’s triangle formation between March 2020 and April 2020 led to a trend reversal to the upside.
Given these varying outcomes, how can traders use this chart pattern to reduce risk and prepare for the next move? Let’s delve into it.
When trading an ascending triangle pattern, traders often use a widely-tracked measuring technique to identify profit targets after a breakout or breakdown. In a bull trend, the target is determined by measuring the maximum distance between the triangle’s upper and lower trendlines and adding it to the upper trendline. The same principle applies to ascending triangle reversal setups.
On the other hand, in a bear trend, the profit target is obtained by measuring the distance between the triangle’s upper and lower trendlines and adding it to the breakdown point on the lower trendline.
It’s important to be cautious of fakeouts, which can be identified by checking the accompanying trading volume. An uptick in volume is usually seen as a sign of strength, while a flat volume trend suggests that the breakout or breakdown may lack sufficient momentum.
Using stop-losses on the opposite side of the trend is another tool that traders can employ to reduce risk in a potential ascending triangle breakout or breakdown scenario. This allows traders to exit their positions at a smaller loss if the trend reverses before reaching its technical profit target.
To reiterate, this article does not provide investment advice or recommendations. Investing and trading involve risks, and readers should conduct their own research before making any decisions.