Although we have already looked at a Classic Pattern in the Learn Technical Analysis Free series, another important pattern to understand early on is the Ascending Continuation Triangle. This pattern is formed by two converging trendlines — a horizontal upper line that scrapes along two steady “highs” of a trading range and an increasing lower line that follows two higher lows of the same range.
Investors who want to learn technical analysis are wise to understand the Ascending Continuation Triangle as it is normally a short-term pattern that takes form over one to three months. This allows for quick gains if the pattern is accurate and minimal losses if it is false.
When starting to learn technical analysis, it is usually a little more difficult to have the patience needed to confirm such a pattern. However, here are a few tips to consider as the pattern starts to take shape.
Volume
This is considered one of the most important factors when confirming this pattern. What investors need to see is that volume diminishes as the pattern takes shape and then spikes at breakout (pattern confirmation). Conversely, if there is no spike at breakout, then the pattern is considered less reliable or even false.
Moving Average
If the pattern’s prices come close to or touch the 200-day Moving Average, the pattern is stronger and investors should consider it more reliable than if the prices were not close.
Duration
Duration also needs to considered, something many investors who have just started to learn technical analysis tend to forget. Break-out will happen when the price penetrates the upper horizontal line (e.g. the resistance line), but this occurrence should happen long before the pattern reaches the apex, or right-side tip of the triangle. Generally speaking, this break-out should occur between three-quarters to two-thirds of the way along upper line.
In terms of explaining, in fundamental terms, how the Ascending Continuation Pattern evolves, consider a large institutional investor who wants to unload a large quantity of stock at a certain price. The order is placed. Once that price is reached, buyers will draw on the large supply and consequently, for other sellers to fill their orders, the price will need to drop. This will create a resistance line. However, once that large supply of stock is exhausted, the price will continue to climb as it normally would, providing the breakout that investors who want to learn technical analysis are waiting to see.
