Everything You Need to Know About the Ascending and Descending Triangle Patterns

In this article, we will discuss

• Triangle Patterns in Trading
• What is an Ascending Triangle Pattern?
• The Features of an Ascending Triangle Pattern
• How to Trade the Ascending Triangle Pattern?
• What is a Descending Triangle Pattern?
• The Features of a Descending Triangle Pattern
• How to Trade the Descending Triangle Pattern?
• Conclusion

Chart patterns can be extremely useful for traders in the financial markets. Whether you are trading in the equity segment or the derivatives market, patterns on price charts can give you helpful signals about how the market may perform in the next few trading sessions. With a Samco trading account, you can access a wide range of TradingView charts on the Samco trading app free of cost. However, to make the most of this feature, you need to know what various stock market chart patterns mean.

Some patterns closely resemble one another, so it may be difficult for beginners to spot the differences and make the right trading decisions when such signals appear. One such set of signals includes the ascending triangle and descending triangle. To make chart analysis of these triangle patterns easier, we have created this comprehensive guide on what these patterns are, when they appear, what they mean and how you can trade them effectively.

Triangle Patterns in Trading

As the name indicates, triangle patterns in trading resemble the shape they are named after. These patterns are considered to be continuation signals as they occur when the price consolidates during an existing trend. After the consolidation, the price tends to move in the same direction as it did before the pattern formed.

To identify if a triangle is being formed on a price chart, you need to connect the resistance levels and the support levels using distinct lines. The slopes of these lines can tell you whether you are looking at a triangle chart pattern.

The resistance level is formed at the price points beyond which a stock or security’s price cannot rise. When the price hits this level, it typically reverses downward. It may then rise again, but faced with resistance once more at the same price point or at a different level, it will fall again. This will continue till a breakout happens due to steep buying pressure.

Conversely, the support level is formed at the price points below which a stock or security’s price cannot fall. If the price reaches an existing support level, it generally reverses upward. Thereafter, it may fall to the same support level or a new one again but may fail to break that price limit. So, it rises again instead. This behaviour continues till the price breaks down below the support level due to mounting selling pressure.

To identify a triangle pattern in trading, you need to be able to decipher the resistance and support levels and connect them to create two trend lines.

What is an Ascending Triangle Pattern?

An ascending triangle is generally formed during a prevailing uptrend. Here, the upper trend line is typically horizontal, indicating that the resistance level is constant. However, the lower trend line is an ascending line, meaning that the support level increases steadily over time. This means that the price makes higher lows, while the highs remain more or less the same.

The rising support level indicates that buying pressure is building in the market. As buyers continue to increase their activity, the price of the asset makes higher lows till it eventually breaks out of the constant resistance level and continues to trend upward. This breakout is a key defining feature of the ascending triangle pattern.

The Features of an Ascending Triangle Pattern

To ensure that your identification and chart analysis are accurate, you must know which features to look for in an ascending triangle pattern. The key elements in this signal include:

• Prevailing Bullish Trend:

The prevailing trend before the formation of the pattern should have been bullish. Since the ascending triangle is a continuation pattern, it occurs during an uptrend and allows the price to consolidate before it breaks out and climbs once more.

• Two Clear Trend Lines:

The pattern must have two clear trend lines, which are formed by connecting the resistance price points and the support price points respectively. The trend lines must also converge (or appear to do so).

• Distinct Slopes for the Trend Lines:

The upper trend line should have a nearly zero slope, while the lower trend line should have a positive slope. This essentially means that the upper trend line should be horizontal, while the lower line ascends, thus giving the appearance of an ascending triangle shape.

• Constant Resistance but Increasing Support:

The resistance level in the market should be nearly the same, indicating that the sellers are not getting significantly stronger or weaker. However, the support level must increase as the buying pressure builds and the price makes higher and higher lows.

How to Trade the Ascending Triangle Pattern?

To trade the ascending triangle pattern successfully, you need to know the ideal entry and exit points as well as the stop-loss limit. Here is how you can identify these price points.

• Entry Point:

The ideal time to enter the market when you spot an ascending triangle is when the price breaks out of the resistance level. For a more conservative approach, you can wait for one trading session to confirm the continuation of the uptrend and then take a long position.

• Stop-Loss Limit:

Place the stop-loss just below the most recent support level within the triangle pattern. Alternatively, you can set it below the upward-sloping trend line of the triangle. This protects you from false breakouts and limits your potential loss if the price fails to rise strongly.

• Take-Profit or Exit Point:

To find the minimum price target, calculate the height of the triangle at its widest point and project this distance upward from the breakout price. You can also use multiple targets, take partial profits at the first target and let the remainder run with a trailing stop-loss.

What is a Descending Triangle Pattern?

A descending triangle is the opposite of an ascending pattern. It occurs when there is a prevailing downtrend. In this chart pattern, the lower trend line (or the support) is generally horizontal and constant. The upper trend line, which indicates the resistance level, is a descending line. This means the resistance makes lower highs with each new trading session.

The falling resistance level is a sign that selling pressure is mounting in the market. As new sellers add to the existing selling pressure, the asset’s price continues to make lower highs till it breaks downward past the support level. Thereafter, it may continue to trend downward if the selling pressure persists — which is a key feature in the descending triangle.

The Features of a Descending Triangle Pattern

A descending triangle also has some key features that can help you confirm its occurrence. This is crucial because you need to be sure of the pattern before making trading decisions.

• Prevailing Bearish Trend:

A descending triangle pattern generally occurs during an existing downtrend. It is a period of price consolidation that occurs in the middle of a bearish trend. After the breakout, the price continues to fall again if the selling pressure is adequate.

• Two Converging Trend Lines:

This chart pattern is also characterised by two clear trend lines — one for the support level and the other for the resistance level. The lines must also appear to converge (because the resistance level makes lower highs with time).

• Different Slopes for the Trend Lines:

The lower trend line in a descending triangle generally has a slope of nearly zero. The upper trend line, however, has a negative slope as it is a descending line. Thus, when the two lines converge, the shape looks like a descending or downward-facing triangle.

• Constant Support but Decreasing Resistance:

For a descending triangle to form, the support level in the market should not be very volatile. However, the resistance level should typically decrease because of growing selling pressure in the market.

How to Trade the Descending Triangle Pattern?

If you know how to trade the ascending triangle pattern, you will find it easy to trade the descending triangle too. Here is how you can find the key price points for this trade:

• Entry Point:

Consider entering the market when the price breaks down past the strong support line. This may be a suitable time to take a new short position or close an existing long position. You can also wait for one more trading session for additional confirmation of the downtrend.

• Stop-Loss Limit:

The stop-loss limit in a trade based on a descending triangle pattern should ideally be the most recent resistance level. Ensure that you set a stop-loss along with your trade, so your losses are limited if the signal is false.

• Take-Profit or Exit Point:

Calculate the height of the descending triangle at its widest point and project this distance downward from the breakout point. This gives you the minimum price target. Here too, you can use multiple targets accompanied by a trailing stop-loss.

Conclusion

This sums up everything you need to know about trading the triangle patterns. You should also remember to confirm your finding with other key signals like trading volume, moving averages and other technical indicators. This will help reduce the chances of being misled by false signals.

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