Ascending Triangles – Long Trading Strategy
August 13, 2009 by Jeff Cartridge
Filed under Stock Market
The ascending triangle is a very well known chart pattern that has been used by many successful traders over the years. An ascending triangle is formed when the price action is contained within two lines. The top line is close to horizontal while the bottom line slopes up towards the top line.
Ascending Triangles, A Traders Favourite Pattern
Most ascending triangles, in fact 63%, break out to the upside making this pattern very predictable. Around half (51%) of these breakouts are profitable and on average the profit per trade is 1.43% over a period of 10 days.
The high chance that the ascending triangle will break to the upside, together with some strong moves when the pattern does breakout, makes this pattern attractive to trade.
Refine Your Entries
A long breakout from an ascending triangle works better in a rising market which is clear from the poor performance in 2002 and 2008. Ensure the market is in a consolidation phase or an up trend prior to the breakout. Check the sector is in an up trend as well.
A breakout from an ascending triangle ideally occurs before the pattern gets 90% of the way to the point of the pattern. If it goes all the way to the end it will produce smaller profits. In a similar way patterns with a very low height relative to the stock price (2% or less) produce smaller returns.
Illiquid stock can be identified by two identical closes or lows and if this is the case you are better to avoid these trades. If volume supports an ascending triangle breakout then the profitability of the trades improves. For volume to support the breakout, volume when the stock is going up should be greater than volume when the stock is going down.
Ascending Triangles Are Very Profitable
You can improve your trading results by using a series of simple filters that have been outlined here. This select group of ascending triangles delivers an average profit of 1.83% in 10 days and is profitable on 58% of the trades. Overall this makes ascending triangles attractive to trade.
Note: Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 – 2008.
