Market analysts rely on various technical indicators to predict future trends, one of which is the highly popular ascending triangle chart pattern.
What exactly is an ascending triangle pattern? Well, as the name suggests, it forms on a chart when the price consolidates between a rising trendline support and a horizontal trendline resistance.
This pattern typically appears during consistent uptrends or downtrends, and most technical analysts view it as a “continuation pattern,” indicating that the overall market trend is likely to continue.
For example, let’s take a look at the Bitcoin (BTC) price chart above. It shows the BTC/USD trading pair forming an ascending triangle pattern between April 2020 and July 2020.
In late July, the BTC price breaks out of the triangle range to the upside. It then retraces to test the pattern’s resistance trendline as support in September, confirming the bullish outlook and continuing its uptrend.
However, it’s important to note that the ascending triangle is not always a reliable indicator for bullish continuation, especially in bear markets. For instance, during the 2018 bear market, the occurrence of the ascending triangle in the Ether (ETH) price chart below preceded further downside.
There are also instances when ascending triangles signal the end of bear markets. One such example is Ethereum’s triangle formation between March 2020 and April 2020, which led to a trend reversal to the upside.
Given these variations in outcomes, how can traders use this chart pattern to reduce risk and better prepare for the next move? Let’s delve deeper into the trading strategies.
The ascending triangle has a well-known measuring technique that can help traders identify their 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 trendline and adding that distance to the upper trendline. The same principle applies to ascending triangle reversal setups.
Conversely, in a bear trend, the profit target is obtained by measuring the distance between the triangle’s upper and lower trendline and adding that outcome 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 increase in volume is generally seen as a sign of strength, while a flat volume trend suggests that the breakout or breakdown may lack sufficient momentum.
Using stop-loss orders on the opposite side of the trend is another tool that traders can employ to mitigate risk in a potential ascending triangle breakout or breakdown scenario. This allows traders to exit their positions with a smaller loss if the trend reverses before reaching the desired profit target.
Please note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risk, and readers should conduct their own research before making any decisions.