What is an 'Ascending Triangle'

An ascending triangle is a bullish chart pattern used in technical analysis that is easily recognizable by the right triangle created by two trendlines. In an ascending triangle, one trend line is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trend line connects a series of increasing troughs. Traders enter into long positions when the price breaks out from the horizontal trendline.

The chart below is an example of an ascending triangle in the SPDR S&P 500 Oil & Gas Equipment ETF (XES) that occurred following a prolonged downtrend:

BREAKING DOWN 'Ascending Triangle'

An ascending triangle is generally considered to be a continuation pattern, meaning that it is usually found amid a period of consolidation within an uptrend, but it may also occur as a reversal pattern following a prolonged downtrend. Once the breakout occurs, traders tend to aggressively buy the security and send the price higher on high volume.

The strength and reliability of an ascending triangle pattern depends on the actual pattern more than the prevailing trend. A minimum of two reaction highs and two reaction lows are required to form the ascending triangle pattern's trendlines. But, a greater number of trend line touches tends to produce more reliable trading results. The duration of the ascending triangle pattern can be a few weeks to a few months.

An ascending triangle is the bullish counterpart of a descending triangle.

Trading Ascending Triangles

The ascending triangle pattern represents a period of consolidation during an uptrend, so the volume tends to contract as the pattern develops over time. When the breakout occurs, traders usually look for a significant increase in volume as confirmation of a breakout. The absence of volume during a breakout could lead to a false breakout - or a bull trap.

An ascending triangle's price target is generally equal to the entry price plus the vertical height of the triangle. After the breakout occurs, the horizontal trendline turns into a key support level supporting a move higher. The price may move back to these levels before reaching the ascending triangle pattern's long-term price target.

A false breakout from an ascending triangle pattern occurs when the price moves significantly below the horizontal trendline after a breakout occurs and remains lower. In general, these false breakouts could lead to a reversal of the longer-term uptrend, especially if prices continue to move lower on high volume for several periods following the breakout.

Chart courtesy of StockCharts.com.

RELATED TERMS
  1. Ascending Tops

    This refers to a series of peaks, each peak higher than the previous ...
  2. Triple Bottom

    A triple bottom is a bullish chart pattern used in technical ...
  3. Diamond Top Formation

    A technical analysis reversal pattern that is used to signal ...
  4. Breakout

    A price movement through an identified level of support or resistance, ...
  5. Triple Top

    The triple top pattern is a type of chart pattern used in technical ...
  6. Technical Analysis of Stocks and ...

    Technical analysis of stocks and trends is the study of historical ...
Related Articles
  1. Trading

    Brazil Small Caps Set to Rally 30%

    The iShares ETF tracking Brazilian small caps has formed an ascending triangle pattern, suggesting the potential for a 30% rally.
  2. Trading

    4 Triangle Breakouts Close At Hand

    Triangle breakouts are close at hand in these four stocks. Here's how to trade them.
  3. Trading

    Continuation Patterns: In-Depth Look At Triangles

    We take a closer look at ascending and descending triangles to help traders predict the ultimate breakout direction.
  4. Trading

    Stocks Nearing Triangle Breakout Levels (TIVO)

    Triangles breakouts can provide a risk-controlled way to participate in the next wave of a stock's trend.
  5. Trading

    Four Triangle Patterns to Keep An Eye On

    These four stocks are consolidating in triangle patterns following big moves. A breakout could kick start another significant price trend.
  6. Trading

    Watch for Triangle Breakouts in These Stocks

    These charts show triangle patterns, and breakouts could signal the price direction for the next few weeks.
  7. Investing

    Stocks with Breakout Potential (MDT, SLM)

    Stocks are moving within narrowing price bands and are poised for a breakout.
  8. Trading

    Watch for These Triangle Breakouts (WY, SU)

    Watch for triangle breakouts in these stocks, which could indicate the trend direction over the next several months.
RELATED FAQS
  1. How Do I Target a Breakout in a Technical Chart?

    The biggest challenge when using chart patterns is deciding when to exit an existing position. Read Answer >>
  2. How do I identify a stock that is under consolidation?

    Discover the three major characteristics stocks or securities exhibit when they are trading under a period of price consolidation. Read Answer >>
  3. What is a common price target when identifying a double top?

    Learn about a common bear trading strategy once a double top pattern is identified, and discover how conservative and aggressive ... Read Answer >>
  4. How are Fractal patterns interpreted by analysts and traders?

    Read about the fascinating and controversial fractal patterns and their uses in technical analysis to spot possible trend ... Read Answer >>
  5. How do I effectively create a Range-Bound trading strategy?

    Understand the basics of trading range-bound securities, including how to profit from the relative predictability of the ... Read Answer >>
Hot Definitions
  1. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  2. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  3. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  4. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  5. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  6. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
Trading Center