What is an ascending triangle and how to trade it?

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Market analysts rely on many technical indicators to predict future trends, one of which is the very popular ascending triangle chart pattern.

What is an ascending triangle?

As the name suggests, an ascending triangle on a chart forms when price consolidates between uptrendline support and horizontal trendline resistance.

The pattern usually appears during persistent uptrends or downtrends. Most technical analysts see this as a “continuation pattern”, meaning that the general market trend is likely to resume.

Three-day BTC/USD price chart with an ascending triangle breakout. Source: Trading View

For example, the Bitcoin (BTC) price chart above shows that the BTC/USD trading pair forms an ascending triangle between April 2020 and July 2020.

BTC price breaks out of the triangle range at the end of July on the upside, returns to retest the resistance trendline of the model as support in September for further bullish confirmation, resuming its uptrend.

However, the ascending triangle is not always an indicator of a bullish continuation, especially in bear markets. For example, its appearance during the 2018 bear market preceded more declines, as shown in the Ether (ETH) price chart below.

Three-day ETH/USD price chart with ascending triangle pattern. Source: Trading View

There are also instances when ascending triangles signaled the end of bear markets. One is Ethereum’s triangle formation between March 2020 and April 2020, which led to an upward trend reversal, as shown below.

ETH/USD daily price chart with ascending triangle reversal. Source: Trading View

So, given these variations in results, how do traders use this chart pattern to help reduce risk and better prepare for the next move? Let’s take a closer look.

How to trade an ascending triangle pattern?

The ascending triangle has a widely followed measurement technique that could help traders identify their profit targets after a breakout or breakout.

Related:Cryptocurrency investing: The ultimate indicators for crypto trading

The target in an uptrend is measured by taking the maximum distance between the upper and lower trendline of the triangle, then adding the distance to the upper trendline. The same goes for ascending triangle reversal patterns.

Ascending triangle pattern breakout target illustration

Conversely, the profit target in a downtrend is obtained by measuring the distance between the upper and lower trendline of the triangle. Then add the result to the breakout point on the lower trendline.

Ascending triangle pattern distribution target illustration Beware of counterfeits

Ascending triangles have a 72.77% success rate in hitting their profit targets, which means counterfeits are definitely possible.

Some clues can be obtained by checking the accompanying trading volume. A rise is generally considered a sign of strength. Conversely, a flat volume trend suggests that the breakout or breakout may not have enough momentum.

Using stop-losses on the opposite side of the trend is also another tool traders can use to reduce risk in a potential breakout or breakout scenario of an ascending triangle. In other words, traders can exit their positions with a smaller loss if the trend reverses before reaching their technical profit target.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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