The Ascending Triangle is defined by two lines: a horizontal resistance line running through peaks and an uptrend line drawn through the bottoms. While two bottoms belonging to the same trendline would suffice for pattern recognition, it is more favorable when there are more. This describes perfect conditions for the Ascending Triangle formation, which means that overall signal strength is set to maximum. However, it's a rare occasion to find a perfect triangle, so in the majority of cases both trendline and resistance line will be pierced by false intra-bar breakouts; the resistance line can be also slightly inclined. It is suggested to watch out for false breakouts carefully as they might be easily confused with the true ones when, in fact, the price is going to retreat back into the triangle.
Generally speaking, the Ascending Triangle is a bullish continuation pattern. However, exceptions are quite possible: it's not infrequent to see it develop in downtrend conditions. If formed in the downtrend, the Ascending Triangle is more likely to act as a reversal pattern. Breakouts can also happen in both directions. Statistically, upward breakouts are more likely to occur, but downward ones seem to be more reliable. Majority of breakouts of either direction are observed in the second half of the pattern formation distance. In the geometrical sense, this distance is measured between two points: the first high to low reversal and the point at which the trendline and the resistance line cross (so-called apex).
Volume behavior throughout the pattern formation can be quite erratic and thus risky to rely on.
Ascending triangle patterns are traditionally bullish signals that can occur in any trending environment—up or down. It is, as Hill described, “a bullish continuation price pattern.”
What does an ascending triangle look like? The upper part of the triangle is flat, like a ceiling that can act as a resistance level (see figure 3).
“Even though the highs are at a resistance level, the lows continue to go higher and higher,” Hill commented. “Traders may look for the upward price break above the resistance level before the horizontal and diagonal lines of the ascending triangle cross. That is the most common entry point.”
FIGURE 3: BREAKING OUT FROM AN ASCENDING TRIANGLE. An upside breakout from an ascending triangle could indicate the start of a trend, although you may consider placing a stop order in case price dives back below the horizontal line
So, how might you trade an ascending triangle pattern?
Calculate the distance between the horizontal resistance line at the top of the pattern and the lowest valley of the rising support line
Wait for the price to break above the upper horizontal line—a potential “long” entry point
Consider placing a stop order slightly below the horizontal line along the top of the ascending triangle
Your “take profit” target might vary here: You could add the distance between the top and bottom of the pattern to the breakout point or a price level below that distance to determine a price target