What is an ascending triangle?
The ascending triangles form when the price follows a rising trendline. However, the trend consolidates, failing to make new highs.
Ascending triangles are considered to be continuation patterns. Therefore, a break of the resistance prompts a rally.
The pattern is negated if the price breaks below the upward sloping trendline.
How can we trade ascending triangles?
The following example of the EUR/USD illustrates an ascending triangle pattern on a 30-minute chart. After a prolonged uptrend marked by an ascending trendline, the EUR/USD temporarily consolidated, unable to form a new high or fall below the support. The pair reverted to test resistance on three distinct occurrences, but it was incapable of breaking it. The pattern formed once a horizontal resistance and ascending support lines acted as buffers for the price action. Finally, EUR/USD breached resistance signaling a potential bullish breakout.
Once the ascending triangle formation is formed, we wait for a confirmation candle to signal a breakout. Since the following candle continued to advance higher, we enter the position at 1.4160, while placing our stop-loss slightly below the previous significant low at 1.4110. The EUR/USD rallies upward in line with our desired direction. The pair advances roughly 100 pips before consolidating once more, providing us with a 2:1 reward-to-risk ratio.
What is a descending triangle?
The descending triangle forms when the price follows a downward trendline. However, the trend consolidates, failing to make new lows or break a downward trendline.
Descending triangles are considered continuation patterns. Therefore, a break in the support prompts the price to fall.
The pattern is negated if the price breaks the downward sloping trendline.
How can we trade descending triangles?
The following example of the NZD/USD illustrates a descending triangle pattern on a five-minute chart. After a downtrend which followed a descending trendline, the pair temporarily consolidated, unable to make a new low. The pair reverted to test resistance on two distinct occurrences, but it was incapable of breaking out to the upside. The pattern formed a horizontal support while descending resistance lines acted as buffers for the price action. Finally, the NZD/USD breached the resistance, signaling a potential bearish breakdown.
Once the descending triangle formation is completed, we wait for a candle to breakout from the pattern. We sell short NZD/USD at 0.6375, while placing our stop-loss slightly above the previous significant high at 0.6405. NZD/USD tumbles in our desired direction. The pair descends roughly 90 pips before consolidating once more, providing a 3:1 reward-to-risk ratio. Considering this is a five-minute chart, the profits and risks are generally smaller than if the pattern appeared on a larger timeframe.