Anatomy of Chart Patterns: Ascending Triangle

Ascending triangle is a Bullish pattern and is exactly the reverse of the Descending Triangle. Like descending triangles form near support zones, Ascending triangles form near the resistance zones. We can see this kind of pattern usually after a swift up move and price is near strong resistance zones. In Ascending triangles supply is distributed at single price level, so here the resistance line is horizontal and the support line is up-sloping and touches the resistance at the apex.

How the pattern is formed:

1. Whenever price comes to resistance level, it tends to move down from that point as it witnesses more supply.
   
2. When the demand is in an increasing trend, the price takes support from a level above previous support point.
   
3. Price ping-pongs between the support and resistance line giving a visual impression of a right-angled triangle.
   
4. Since there is no clarity in the price trend, market participation declines and should be clearly visible with draining volumes
   
5. After some supply tests at the resistance line, if the supply is totally absorbed by the buyers and price will break the resistance line.
   
6. As the critical resistance line is taken out, the increased demand accelerates the up move.
   

Criteria for a successful Ascending triangle:

• Should give breakout or break down in between 50% to 80% of the distance to the apex. If prices break out after 80%, probability of the pattern success declines.
  
• Volumes should drain while the pattern is forming, which indicates thrust buildup
  
• Note the volumes when ever the price meets the resistance line. A lower volume from previous price-resistance point is a good indication that pattern might give break out.
  
• At the break out, higher volumes and wider spread of the candle gives confirmation.
  
• While drawing the resistance and support lines of the triangle we need to go with highs/lows. If we lines are breaking some candles we need to look for the error percentages and volume. Low volumed errors can be ignored, but not high volumed. Tick data helps here some times.
  
• More white space should not be visible, between the waves.
  

Below is the 5 min chart of JP Associates, as an example of a reversal:

• Our analysis starts only after two highs and two lows are formed and joining the trend lines through them resembles a right angled triangle, where the right angle is on the left top.
  
• Notice the falling volumes. It is OK to have some random high volume bars, but the overall, volumes should confirm to a diminishing look visually.
  
• Price moving in a very narrow range and the volumes are almost dried up due to uncertainty of the trend.
  
• At one point, price gave the breakout with and heavy volumes confirm this.
  
• Price bounced back to retest the supply line. The retest may not always touch the trend line, and in some cases may not happen at all. But retest acts as a push back from the resistance line and adds more thrust to the up move.
  
• Now the bulls clearly won the battle, demand is increased drastically and as the losing side close there short trades and new participants came in price moves up with wide spreads and increasing volumes.

An example of Ascending Triangle as continuation pattern: