Trading 101: Trading The Ascending and Descending Triangles Chart Patterns Like a Professional Crypto Trader

2021/11/10 11:24:03

Breakout trading strategies have been the holy grail, especially in a market as volatile as the crypto market. Typically, the market experiences sudden and massive bull or bearish runs, and for traders, catching a trend while it begins is invaluable. This is exactly what the ascending and descending triangles help achieve.

The ascending and descending triangle patterns are continuation chart patterns. That means when they form, you can anticipate that the price action will continue with the trend observed in the past. Simply put, the ascending and descending triangles represent a momentary period price consolidation.

Typically, the volume should decrease as the triangle chart pattern forms, and it should increase when a breakout occurs.

What is an Ascending Triangle?

This chart pattern represents bullish continuation. The ascending triangle is recognizable in the chart by rising lows and constant highs. You can draw a rising trendline connecting the higher lows and a horizontal line connecting the highs. This is how the triangle pattern is formed.

The ascending triangle has an ascending trend line as well as a horizontal resistance or support line. A breakout then leads to a signal, following the trend in the event of a breakout upwards and a trend reversal in the event of a breakout downwards.

From this pattern, the bullish significance of the formation can already be derived, as the higher lows show an increasing buying pressure or a decreasing selling pressure. Therefore, each downward price movement is shorter because the sellers are not strong enough to push the price further.

How to Trade the Ascending Triangle?

An "Ascending Triangle" is a bullish chart pattern. It shows the market in the phase of a pause during an uptrend. However, the rising swing lows are bullish clues. Keep in mind that the highs of the ascending triangle form a resistance level.

Buy in an uptrend at a breakout above an ascending triangle or a symmetrical triangle. Here's how to open a long trade:

The market must be in a sustained uptrend
The price forms higher lows, and high price swings do not breach the upper horizontal line
The entry is confirmed when the price breaches the upper trendline. This shows that the bulls have regained control of the market

When the price breaches the resistance level, it becomes the support level. The long positions have a good support zone under them immediately after the breakout; this would be the best point to set up a stop loss.

Formation of Ascending Triangle on the Ethereum Price Chart on KuCoin | Source: ETH/USDT

However, since the resistance can be strong, it is imperative to pay attention to the sustainability of the outbreak movement. High trading volume and buyers' dominance up to the closing price show that most market participants are bullish. With the breakout, the continuation of the upward trend also takes place, which is confirmed again by the formation of a new high.

If you want to trade the upward triangle, you can either place a buy stop directly above the resistance or wait for the breakout to enter via buy limit.

The latter will be placed in the region of the former resistance if the eruption has been sustainably confirmed. For this reason, an order is triggered only during a retest of the resistance. For the entry target, the triangle's height - from the lowest low of the pattern to the highs – is measured and then placed above the resistance. This ensures that you only go long when the breakout has been confirmed.

A possible stop-loss level is below the last trend low, as falling below it would mean the end of the uptrend.

What is a Descending Triangle?

This is a bearish continuation pattern. It is the exact opposite of the ascending triangle. The descending triangle has a descending trend line as well as a horizontal resistance or support line. A breakout then leads to a signal, following the trend in the event of a breakout downwards and a trend reversal in the event of a breakout upwards.

This means that the sellers manage to push back the buyers earlier with each upward movement until finally the downward pressure is sufficient and a sustained breakout below the support of the lows succeeds. Again, the breakout of increased volume and (at least) a closing price below the last lows should be confirmed.

How to Trade the Descending Triangle?

When trading the descending triangle, you should short the market or take profits in day trading when a breakout occurs below a descending triangle.

Here's how to accurately identify this pattern:

The market must be in an established bearish trend.
The price action has lower highs with a dropping trendline connecting them. It indicates that the buying momentum is weak.
The lower price swings are averagely near each other and can be connected with a horizontal trendline, forming a flat bottom – this is the support level.
Bearish continuation is confirmed when the price breaks and closes below the support level.

Formation of Descending Triangle on the Dogecoin Price Chart | Source: DOGE/USDT

The stop loss can be set above the last trend high. If this level is removed, the trend would eventually turn upwards.

To recap, the triangle patterns are continuation chart patterns. The ascending triangle is a bullish continuation pattern, while the descending triangle is a bearish continuation chart pattern. Always make sure to confirm the signals generated by this pattern by pairing it with any reliable technical indicators for extra accuracy. Also, follow the KuCoin Blog for more informative trading content. Happy trading!

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