A rising triangle chart pattern is used for technical analysis chart reading. It is created by the convergence between a rising trendline at swing lows and horizontal lines at swing highs. These lines create an asymmetrical triangle. When traders see a triangle pattern, they are often looking for breakouts.
These breakout periods can also be estimated using ascending triangles. These are also known as continuation patterns. The price of security will usually break out in the direction of the trend that was in place before the triangle formed. The ascending triangle can be traded because it offers a quick entry point, stop loss level and profit target.
A descending triangle is another continuation pattern. Visually, the descending triangle is different from an ascending one in that it has a horizontal lower trendline and its upper trendline moves downwards. The ascending triangle pattern is the opposite. One can see a rising trendline that converges to meet a horizontal upper trendline in this example.
A continuation pattern is an ascending triangle. The pattern is considered significant even if it occurs in both a downtrend or an uptrend. When the triangle breaks out, traders will quickly sell or buy assets aggressively depending on the direction the share price broke out. The volume increases to confirm if the price has broken. The greater the volume, the more people are interested in price movements that are not within the pattern.
For an ascending triangle to form, it is necessary for at least two swing lows or two swing highs. A greater number of trendlines touching each other indicates more reliable trading results. Both trendlines are converging into one another, so if the share price continues to move within this triangle for many swings it will become more coiled and eventually lead to a stronger breakout.
Trend periods are more common than consolidation ones. This is because the volume of shares tends to be higher during these periods. An ascending triangle chart pattern, which is a type of consolidation, causes the volume of shares to decrease slightly. Trader seeks to find a higher share volume near a potential breakout point, as mentioned previously. This helps determine if the security is nearing a breakout point.
If the share price breaks out with a lower volume, it is a sign that the breakout will be weaker. This is a sign that the price could return to the pattern, also known as a false breakout. It is important that ascending triangle traders pay attention to the share volume when determining the breakout point.
Trading is when the share price breaks out. The rule of thumb among traders is to buy shares if they breakout on their upside and sell/short if it breakouts on the security's side. A stop loss is placed just outside of the ascending triangle chart pattern to reduce one's losses. If a trader is taking a long trade with an upside breakout, the stop loss will be placed just below the lower trendline of the triangle.
An ascending triangle pattern can also be used to calculate a profit target. It is often done by subtracting the height of the triangle, depending on its direction, from the breakout price. This is the width of the ascending triangle pattern. Let's assume that the triangle is at its widest point at Rs50. To get an accurate estimate of the profit target, this value will be added the upside breakout point. If the price breaks on the downside, the same value will be subtracted.
This chart pattern has one limitation, as it is for all technical indicators. It can give false breakouts. Sometimes, the share price may move outside the pattern and break out of the price to re-enter the pattern. An ascending triangle pattern can be redrawn multiple times without creating momentum if its price moves beyond trend lines. However, it may not break out completely. The breakout point is usually indicated by the share volume increasing quickly.