swing trading

Ascending Triangle Chart Pattern - How It Works and How Traders Can Use It

Stock Market Guides is not a financial advisor. Our content is strictly educational and should not be considered financial advice.

When it comes to the stock market, sometimes you might hear the term "ascending triangle" mentioned. It refers to a stock chart pattern that is popular among active stock traders.

This article will explain what an ascending triangle chart pattern is and how traders might be able to benefit from using it.

 

What Exactly Is an Ascending Triangle?

An ascending triangle is a stock chart pattern characterized by two trendlines. One is a horizontal line along the top made up of price peaks, which serves as a resistance level. The other is an upward sloping line of support at the bottom that connects the price troughs.

 

 

That image is a graphical icon that gives an idea visually of what an ascending triangle chart pattern looks like.

 

What Does an Ascending Triangle Look Like On A Stock Chart?

The image below is an example of an ascending triangle pattern as shown on one of our stock charts.

 

 

There are golden lines on our charts that automatically outline chart patterns when they're detected.

You can see the flat top where the resistance level is and the upward sloping bottom support level. The formation of those trend lines looks like a triangle that's ascending.

 

How Do Traders Use an Ascending Triangle?

The appearance of the ascending triangle pattern indicates that the stock is experiencing a consolidation period. The price is making a series of higher lows (indicating buying pressure) while maintaining a top level of resistance that doesn't go higher. The price range between the highs and lows is therefore getting tighter and tighter.

Ascending triangles are typically seen as continuation patterns, which are patterns that occur during an existing trend. When they form after an uptrend, they may signal that the upward trend could continue after the breakout.

Sometimes, traders look for volume to increase as the price approaches the point of breakout in the ascending triangle. An increase in volume can be seen as confirmation of the breakout direction.

 

Is An Ascending Triangle Bullish or Bearish?

Ascending triangles are generally considered bullish chart patterns, meaning that the presence of an ascending triangle on a stock chart might be an indication that the stock price is on the verge of going up.

The bullish implication comes from the idea that buyers are gaining strength. In this pattern, with each successive swing low, the price establishes a higher low. This typically indicates that buyers are more willing to buy at higher prices, which is a sign of bullish sentiment.

Since an ascending triangle is typically considered bullish, it means traders might try to capitalize by going long (meaning that they would be buying instead of shorting).

 

How Do You Find Stocks That Have Ascending Triangle Patterns?

You can find them by using our Ascending Triangle scanner. It's a free tool we offer here at Stock Market Guides. It uses our proprietary scanning technology to find stocks that are in an ascending triangle chart pattern.

Here's how the scanner results look:

 

That tool ensures that you don't have to waste time flipping through stock charts manually to find stocks with an ascending triangle.

You can also find stocks with ascending triangle breakouts on our Breakouts scanner.

 

Example of an Ascending Triangle Trading Strategy

For this example of an ascending triangle trading strategy, we're going to use a daily chart, where each price bar represents one day of price activity. That means it would be a swing trading strategy where the trade is designed to last more than one day but not for the long haul.

 

Entry for the Ascending Triangle Trading Strategy

The entry for this Ascending Triangle trading strategy will be as follows:

The entry criterion for our Ascending Triangle trading strategy is very simple. You can see in the stock chart below for BRO that the entry price would be right around $121, where that upper golden line is.

 

 

Exit for the Ascending Triangle Trading Strategy

There are a lot of possibilities here for the exit.

One benefit of using a stock chart pattern as a basis for making trades is that the pattern itself can help you determine exits in some cases.

For any given trading strategy, it can be helpful to define three different criteria for the exit: profit target, stop loss, and time limit.

Not everyone uses all three, and that's totally fine. Ultimately you can set these values however you want. But for the purposes of this strategy example, we will define all three:

 

1. Profit Target

We will set the profit target at 2 ATRs away from the entry price.

ATR is an indicator in the stock market that measures a stock's recent price volatility. Most trading platforms have it available as an indicator you can enable.

Our profit target criterion indicates that we will take the ATR value of the stock, multiply it by two, and add it to the price we paid when we bought the stock. That will be our profit target and we can set up a sell limit order at that price.

2. Stop Loss

We will set the stop loss at 0.5 ATRs below the support line (the bottom trendline of the ascending triangle). This means we take the ATR value of the stock, multiply it by 0.5, and subtract it from the price of the lower trendline from that day.

That will be our stop loss and we can set up a stop order at that price.

3. Time Limit

We will set the time limit as one week since this is a swing trade. If the stock has not hit either the profit target or stop loss by the time limit, then we will close the trade manually at the opening bell seven calendar days after entry.

 

How Well Do Ascending Triangles Actually Work?

The idea of an ascending triangle trading strategy sounds nice to many people because it offers a clear, easy-to-understand way to find and manage a trade setup.

But does it actually work? Can traders indeed generate profits by trading ascending triangle chart patterns?

That's exactly what our company can help answer for you, since our scanner technology has allowed us to do our own research on that precise question.

The answer is that trades based on an ascending triangle are not always profitable, but for certain stocks they might indeed have a track record of success according to our backtest research.

Here is some data that shows how a proprietary ascending triangle trading strategy we created has performed historically according to backtests:

 

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Anyone who signs up for our swing trading scanner service will be able to see stocks that qualify for that trading strategy in real time.

 

Learning More About Ascending Triangles

You can contact us any time if you would like to ask any questions about ascending triangles or anything else related to the stock market.