No one can deny the rapid fluctuations in prices in the crypto market. In some cases, these market movements may result in huge losses for the traders. Therefore, the traders in the market use different technical indicators to anticipate market trends and price movements. The ascending triangle chart pattern is one such indicator.
Ascending triangle pattern is one of the common chart patterns that is formed quite easily. As the buyers are merging, this temporarily puts a pause on the market’s price action. The pause then puts a breakout to the trend that results in the activation of the pattern.
Here is a detailed guide article explaining the concept and usage of ascending triangle patterns and how to trade them in the market.
Types of Triangle Patterns
Triangle patterns are used as an indicator to analyze and determine market conditions. These patterns are important as they help traders predict the market’s bullish or bearish trend. Moreover, the reversal of market trends can also be predicted using these triangle patterns. The three different types of triangle patterns are discussed below.
- Ascending Triangle Pattern
An ascending triangle pattern usually indicates a bull market. It signifies that the prices are about to hike as the pattern starts forming.
Two trendlines are used to create the pattern. One of those trendlines is present at the top and acts as a resistance line. When the price increase above this point, it indicates the beginning of an uptrend and hence a bull market.
The lower trendline is the price support created by higher lows. As the prices bounce back and forth between these two lines, an ascending triangle pattern is formed.
- Descending Triangle Pattern
As indicated by its name, a descending triangle pattern is the opposite of the one discussed above. It predicts the bearish pattern in the market. This pattern is also created by two trend lines, where the support line is flat, and the upper one indicates the resistance point.
A descending triangle pattern may also indicate the continuation of the present downward trend in the market. The prices suddenly fall and continue to move between the two lines, forming a descending triangle pattern.
- Symmetrical Triangle Pattern
The symmetrical triangles are considered a consolidation pattern that may indicate the continuation of a price trend or its reversal. As the ascending support line and the descending resistance line converge, the symmetrical triangle pattern is formed. The triangle’s apex is formed as the prices continue to move between these two lines.
In order to indicate the reversal of a trend, one should look for the breakout point below the ascending support line if a bullish trend is seen. On the other hand, the breakout point should be above the descending resistance line for the bear trend.
What is an Ascending Triangle Pattern?
An ascending triangle pattern is formed on the chart when there is a merger between upgoing trendline support and the trendline resistance present horizontally.
This pattern is usually observed in the market during a downward or upward trend. This is usually presumed as a continuation pattern by most market analysts. They believe that the market trend will likely resume as usual after an ascending triangle pattern appears.
Between April 2020 and July 2020, an ascending triangle pattern was formed by the trading pair of USD and Bitcoin that was predicted through the Bitcoin price chart. In late July, the price of Bitcoin broke out of the triangle pattern towards the upside direction.
However, the barrier trendline of the pattern was retested later in September to confirm the bull trend further. This provided a hint about the upward trend of the market again.
It should also be considered that an ascending triangle pattern does not always predict an upward trend in the market. Usually, in bear markets, an appearance of an ascending triangle pattern is not a hint of the shifting of trend.
In the bear market during 2018, the ascending triangle pattern formation led to the further downward movement of Ether prices.
However, in history, the market had observed certain conditions when an ascending triangle pattern predicted the end of a bear market. Between March 2020 and April 2020, the appearance of an ascending triangle pattern for Ethereum predicted the reversal of the trend from the bear market towards a bull market.
Different Parts of an Ascending Triangle Pattern
Different parts of an ascending triangle pattern are discussed below.
- Trend
An established trend must exist for an ascending triangle pattern to qualify as a continuation. However, as the ascending triangle pattern usually signifies a bullish market, it does not have to form in the given time and duration as the robustness of its formation is.
- Upper Horizontal Line
In order to form the upper horizontal line, at least two reaction highs are required. The highs do not need to exist in the same pattern, but they have to be present close to each other. However, the highs should be present at a distance, and there must be a reaction low present between them.
- Lower Ascending Trend Line
The lower ascending trend line is formed in the ascending triangle pattern by at least two reaction lows. However, these reaction lows should be present next to each other with a certain distance between them. The ascending triangle pattern will not be valid if the latest reaction low exists on the same level as the previous one or is presently lower.
- Duration
The length of an ascending triangle pattern may vary between days to even months. An average pattern may last between one to even three months.
- Volume
The volume becomes smaller as the ascending triangle pattern grows. The occurrence of an upside breakout is confirmed when the volume of the pattern starts increasing. However, although changes in volume are considered, it is not necessary that volume changes predict the correct trend.
- Return to Breakout
When the barrier is transformed into a support for the system, it is the basic component of technical analysis. Support is formed when the horizontal resistance line of the ascending triangle pattern is broken. In some cases, when the move starts, one might see the return of this support level back.
- Target
Once a breakout has appeared on the ascending triangle pattern, one can measure the widest distance of the pattern and apply it to a resistance breakout to measure the price projection at that particular point.
What Does an Ascending Triangle Pattern Tell the Traders?
Traders usually consider an ascending triangle pattern a continuation pattern, no matter if it extends in the upward or downward direction. Once a breakout appears on the ascending triangle pattern, traders aggressively sell or buy their assets in the market after properly analyzing the direction of the price breakout.
In addition, the breakout is confirmed by increasing the volume. It shows that the interest increases even if the price moves out of the pattern. This helps the traders in entering the market at breakout points.
Moreover, if the breakout is directed upwards, traders should buy the assets, and if it is directed downwards, they should prefer to sell. In the opposite direction of the pattern, traders should also apply a stop-loss order to avoid loss.
In addition, the height of the triangle can be used to calculate the profit target. For this purpose, consider the widest part of the triangle and add or subtract the height from the breakout price. If the triangle is high, add the value to the breakout point in the upward direction and vice versa to determine the profit target.
Method to Trade an Ascending Triangle Pattern
Traders need to identify the upward trend while trading an ascending triangle pattern. The forex candlestick consolidates as soon as the ascending triangle pattern starts forming.
As the traders look for a breakout, the measuring technique can be applied after forming the pattern. A strong break can be seen above the resistance, where the traders can enter a long position.
A measuring technique is widely used to track the ascending triangle pattern that facilitates the traders in the market to predict the breakdown or breakout patterns.
The distance measured between the upper and lower trendline measures the target during a bull trend in the market. This measured distance is then added to the upper trendline. In a reversal condition, one has to follow the same steps.
On the other hand, one can measure the profit target during a bear market by calculating the accurate distance between the lower and the upper trendline of an ascending triangle pattern. The outcome is then added to the breakdown point of the lower trendline.
As the price continuously forms higher lows, an ascending triangle pattern shows that the buyers in the market are relatively more aggressive than the sellers. After the breakout of the triangle in a similar direction to the trend, the ascending triangle pattern is completed.
Principle and Validity of an Authentic Ascending Triangle Pattern
The ascending triangle pattern is also commonly known as a right triangle because of the shape it normally forms. It commonly forms two or more equal highs at the top of a horizontal line.
Two troughs gradually rise above a horizontal line and converge as they extend. If these lines ascend in the right direction, they can be known as the triangle’s hypotenuse.
An ascending triangle pattern is considered authentic if there are good oscillations between the two lines. The triangle is valid if two of the lines touch at least once. This is the tool to check its authenticity.
The traders should check that the lines should touch the resistance or the support at least three times before considering the lines valid. This confirms the formation of an ascending triangle pattern in the true sense.
Method to Predict an Ascending Triangle Pattern on Forex Chart
It is relatively easier to predict an ascending triangle pattern on a forex chart when the traders look for certain hints in the market discussed below.
- Upward Trend
It should be noted that before an ascending triangle pattern appears, the market should move upward. This guides the traders not to impose any trade whenever an ascending triangle pattern is created.
- Consolidation
As the crypto market enters its consolidation phase, the ascending triangle pattern begins to form.
- Upgoing Lower Trendline
The traders can draw an upgoing lower trendline by connecting the lower points while the market consolidates. When the buyers try to push the prices upwards, it forms an ascending trendline. This facilitates the occurrence of a bullish trend further.
- Flat Upper Trendline
The upper trendline forms a barrier. The prices in the market usually reach this level and then resume back to their original positions till they reach the breakout points on the graph.
- Trend Continuation
After the price in the market reaches a strong brake point above the upper trendline, continued upward momentum confirms the formation of an ascending triangle pattern for the traders.
Strengths and Weaknesses of an Ascending Triangle Pattern
The uptrend describes the trading environment during an ascending triangle pattern formation. The main strength of the ascending triangle pattern is that it helps extend the uptrend. If the pattern is activated, one can easily determine the stop loss and profit target because of the existing two lines in the pattern.
The biggest limitation integrated into the ascending triangle pattern is the false breakout patterns. The price action may hit the stop loss by rising above the resistance line and returning to its original position instantly, giving a false alarm. In this case, traders should also consult other market indicators and confirm the breakout formation.
In addition, the convergence of the two lines indicates the consolidation of power. The breakout is usually stronger as the wedge gets narrower. However, one cannot control this strength and power in all circumstances.
In some cases, it may lead to the explosion of prices in the opposite direction. The chances of continuation of the existing trend are always greater, though.
Recommendations For Trading an Ascending Triangle Pattern
An ascending triangle pattern is considered an important indicator in the crypto market as it confirms the breakout being signified for so long.
However, the ascending triangle pattern should also be tried oppositely so that its lower side falls lower than the support level and ensures a new low in the stock market. In the highly fluctuating crypto market, it is the probability of occurrence of an event that matters to the traders.
However, the indicators and signals applied to the market conditions do not always need to predict the correct scenario. This would then eliminate the need for mediators available in the market.
Therefore, some recommendations about the crypto market and an accurate analysis of the ascending triangle pattern are discussed below.
- Continuation Pattern
It is important to note that an ascending triangle pattern does not always signify a trend’s reversal or continuation. Therefore, the traders should find trading opportunities in an ascending triangle pattern considering that the existing pattern may continue for the time being even if it is high or low.
- Volume Matters
In an ascending triangle pattern, if a stock looks like it is pushing towards an upside breakout, the trend must have been reinforced by a certain volume level accompanying it. However, if one observes the volume increasing instead of going in the opposite direction, it is important to look at the ascending triangle pattern from another dimension.
- Look for False Breakouts
Although the traders try their best to identify the changing patterns and price fluctuations in the market by applying several indicators and logic, despite the math, the market trends may disappoint them and turn out to be the exact opposite of what is expected.
Therefore, one should also expect false alarms while dealing with ascending triangle patterns, as upside or downside movements are possible in the market.
Caution About Scams
Traders can also receive clues about the market conditions by observing the trading volume accompanying the pattern. An uptick in the market is considered a positive sign of strength in market conditions. On the other hand, if one observes a flat volume trend, it might predict insufficient momentum in the breakdown or breakout points.
Another tool that traders can use to minimize the levels of risk is the stop-loss which can be utilized on the opposite side of the trend. This tool is helpful while going through the potential breakout or breakdown scenario during the ascending triangle pattern.
This facilitates the traders to exit their positions at a lower loss before reaching the technical target set for profit and ultimately reversing the trend.
Conclusion
An ascending triangle pattern is among the multiple indicators and techniques used in the crypto market to study and analyze market fluctuations to avoid heavy losses. However, it is not sufficient to only rely on an ascending triangle pattern to decide about future trades.
It is necessary for traders to look at all the aspects of the trading market before making any decision and not decide by considering just a single factor.
