Ascending triangles are classified as continuation Patterns. Here are the key elements that make up an ascending triangle:
1. Bottom Trend Line(Support)– An ascending triangle is characterized by a bottom trend line that is formed as the price continues to set higher lows. The more touch points on the trend line, the more reliable it will be.
2. Horizontal Resistance Line – An ascending triangle also contains a flat horizontal resistance line that is formed as the stock continues to reject its previous highs (for a given period). Once again, the more touch points on the resistance line, the more reliable the pattern will be.
You must be wondering how the chart pattern get to be formed?
What happens during the formation of an ascending triangle is that there is a certain level that the buyers cannot seem to break (red resistance line).
However, as evidenced by the higher lows (green uptrend support line), buyers will gradually push the price up, hence we end up with an uptrend of higher lows.
As buyers and sellers keep putting pressure, a breakout will become inevitable.
Though a price breakout is inevitable, the big question is, “Who will break the price, buyers or sellers? Will the buyers be able to break that resistance level, or will the resistance be too strong?”
Well, the answer is, most of the times the price will break the resistance area and go up.
However, it is not always the case, sometimes, the resistance is too strong for buyers to break.
Now let’s look at its inverse, the DESCENDING TRIANGLE CHAT PATTERN
In a descending triangle chart pattern, as can be seen on the BTCUSD chart above, there is a string of lower highs which forms the upper line (red resistance line). The lower line is a support area (green horizontal line) in which the price seems to be failing to break.
Just as with ascending triangles, most of the times, the price will break the horizontal support line, and continue with the move lower.
Follow me closely as we will now ‘investigate’ the PSYCHOLOGY behind ascending triangles:
To make the analysis easier, let’s think of the ascending triangle pattern as a visualization of an ongoing battle between the bulls (buyers) and the bears (sellers).
The bulls keep pushing the stock up in price until they get overpowered by the bears/sellers at the horizontal resistance level.
It is at that resistance level that bears/sellers attempt to push the price down.
Though sellers are somehow successful in pushing the price down, they are however unable to push the price to the previous low levels, as bulls/buyers are persistent, and the price sets a higher low (bottom trend line).
This pattern continues until the price action becomes confined to the vertex of the triangle, representing a pivotal moment in this battle. At this point, either the bears will win, and the BTC will break the bottom trend line, or the bulls will win and break the horizontal resistance line.
If history is anything to go by, this pattern favors the bulls, and if the horizontal resistance line is broken, the bulls will be able to push the price up, triggering a breakout.
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chart pattern part 3
