Trading forex? You’ve probably heard of an ascending triangle pattern, which is a technical chart pattern used to identify potential bullish movements in the forex market.
It’s just one of a few triangle patterns that Forex traders use that include ascending, descending, and symmetrical triangles.
WHAT IS AN ASCENDING TRIANGLE PATTERN?
An ascending triangle is a bullish continuation pattern and is characterized by two consecutive higher lows and a flat resistance line. It is the exact opposite of the descending triangle pattern and is a variation of the symmetrical triangle.
It occurs when the price of a forex pair moves higher and higher from its low point, but consistently hits a resistance level. As the price approaches that resistance level, traders will watch to see if this bullish chart pattern breaks to higher prices.
- As the two converging trendlines – support and resistance levels – meet at an apex point, a bullish ascending triangle chart pattern is formed.
- The ascending triangle is typically perceived as a bullish formation and it usually appears during an uptrend of a currency pair – acting like a continuation pattern.
- Once the currency pair price breaks out of the ascending triangle formation and closes beyond its upper resistance trendline, then this upward-sloping triangle chart pattern is officially confirmed.
- On the other hand, if the currency pair breaks downwards, then an ascending triangle signals a potential reversal.
As the price continues to hit resistance and then fall back, the swing lows of the pattern become higher. This is important to see occur.
We do not want to see momentum against the pattern.
Eventually, we want to see a breakout occur and that’s often seen as confirmation that the currency is in a bullish trend (the first pair listed IE: USDCAD) may continue at least in the near term – allowing forex traders to make some profits.
How to Spot the Ascending Triangle Pattern
Knowing how to spot the pattern is crucial for forex traders. Triangle chart patterns are pretty easy to spot although they won’t always be a perfect-looking pattern.
A triangle, in the beginning, can look like other chart patterns such as double bottoms.
- Initially, the market should climb upwards and eventually stall when it reaches resistance levels. The price will fall back and find stability on a rising trendline or even a moving average.
- Eventually, the price gets tightly compacted (similar to a coiled spring) under the swing highs until a powerful buying surge hits the currency pair
- The two important clues are the upper horizontal resistance line & the rising lower trendline. You must be able to spot these and draw them and wait for the breakout to happen.
Once buyers manage to push past the resistance level, a sharp uptrend usually follows as more investors come into play and create demand for the currency pair. A breakout from an ascending triangle should be confirmed by seeing larger candlesticks during and after the break.
We are looking for a trend continuation and the overall uptrend to continue. While a trend reversal can happen, it’s not the higher probability move.
How to Trade the Ascending Triangle Pattern Setup For Forex
When trading the triangle pattern setup, there are a few general guidelines you should follow.
First of all, if you are a conservative trader, make sure you wait for confirmation of the breakout before entering your trade. This is especially important when trading an ascending triangle since false breakouts are quite common in these formations.
Once the break is confirmed, you now have a trading setup. You can enter your trade using a buy-stop order 3-5 pips above the breakout candlestick to ensure that short-term momentum is in your direction at entry.
Your stop-loss order will generally be placed at the bottom of the triangle.
If trading long, place your target near a higher resistance level or several pips above it. If you want to take profits early for a smaller risk-reward ratio, then you can also place a trailing stop and let the price move in your favor until it hits this stop.
If using conservative entry, you miss this trade. Finding an entry inside the larger pattern is a viable approach to this pattern as shown in this example.
Smaller Time Frame Entry
Once the pattern completes and there is a trade, sometimes the breakout candle is too large.
Consider dropping down to a lower time frame if you can. In the example above, we are looking at a daily chart. There would be no trade trigger in this example.
Using the 30-minute time frame, you can enter this trade. You won’t catch every trade using a breakout which is why looking inside the ascending triangle pattern is a good approach.
Consider Using A Trailing Stop
You can trail a 10-period or 20-period EMA, use the low of the previous period’s candle, or any other trailing stop method you are comfortable with.
Another method of profit-taking for Forex traders is using a multiple of your risk. If you are risking 50 pips for a trader, you’d look for 150 – 200 pips for a target.
Advantages Of The Ascending Triangle Chart Pattern For Forex
There are several advantages of the ascending triangle strategy for Forex and they are:
- Easily spotted chart pattern on the price chart
- Easy to measure risk/reward ratio
- A large number of profit targets are available
- Can be used as a confirmation signal for other trading strategies
- Potential for large profits with tight stops, as breakouts often occur quickly and sharply
Make sure you have a complete trading strategy in place using this pattern before you trade it.
Disadvantages Of The Ascending Triangle Chart Pattern Forex Strategy
It is important to note that depending on the timeframe you are trading in, the stop losses may be quite large and therefore should be taken into consideration before executing any trades.
Although this forex trading strategy could result in successful gains, keep in mind that due to the nature of market conditions, no strategy guarantees complete success.
The biggest disadvantage is that breakouts will fail and you may need a few attempts before the breakout is sustained.
Conclusion and Key Points To Remember About Ascending Triangle Chart Pattern
An ascending triangle is a bullish chart pattern where a horizontal resistance level and an upward-sloping support level create higher lows. A break through the resistance level may signal the start of a bullish trend.
However, breakouts can fail and no strategy guarantees complete success so it’s important to remember to use proper money management and risk strategies when trading. With a little practice, it is possible to master this strategy and capitalize on the potential profits available in the Forex market.
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