An ascending triangle is a bullish continuation pattern. This pattern is less common in penny stocks than in blue chips, and it is often hard to identify relative to wedges because of late-appearing clues.
Ascending Triangle Construction
In an ascending triangle, the chart pattern shows higher lows for a given period and relatively flat resistance on the highs. Conventional wisdom is that bulls are on the offense and jumping in early before previous support, whereas bears are on the defensive, trying to hold the resistance line.
Triangles and wedges are standard consolidation patterns. As a contracting pattern, volume and price ranges tighten as the triangle gets closer and closer to its breakout point. Though, ascending triangles could theoretically break lower, they most often break higher and continue the previous upward trend.
Examples of Ascending Triangles
The following is an example of an ascending triangle I spotted in Ocugen (OCGN) ahead of a major breakout in late January to early February.
Difficulty in Identifying Ascending Triangles
Remember that chart patterns are constructed primarily from hedge-fund controlled computer algorithms. If you have traded penny stocks for long, you realize that uncertainty (and fear) is a key gimmick used by hedge funds to preserve their advantage over retail traders. Concealing the foundational evolution of a chart pattern is one such tactical maneuver.
Ascending triangles aren’t as common in penny charts because they do not fit the typical mold of bullish moves. However, if you spot one, it is likely a precursor to a strong upward move. Initially, ascending triangles share features of other consolidation patterns (triangles, wedges). The key to an accurate assessment is at least two clear price points that establish the flat resistance in conjunction with two to three points of ascending support. You may have to study multiple intra-day time-frames and daily/weekly charts to pick up the hidden clues. In the example above, notice the quick rejection of the candle that established the second resistance point in this time-frame.
Entry and Exit of Ascending Triangles
The standard entry in an ascending triangle is above the breakout point. Especially conservative traders watch for the breakout and a retest of the resistance turned support. The challenge with this latter approach in penny charts is that this particular setup and move often breaks and runs fast and hard before a sharp pullback.
If you enter a position near the bottom as this pattern begins, your options are to hold through the consolidation (time-frame dependent on the chart time-frame) or exit after pattern recognition and wait for re-entry. If you hold through the consolidation and desire a safety net in case your pattern assessment is wrong, consider a mental (my preference) or firm stop-loss somewhere below the anticipated breakout point but above your entry. This allows you to preserve some profit and protect against downside risk. You would have to set the stop-loss as the breakout nears to avoid an unintended stop out.
Price Target
As with other continuation patterns, the conventional price target on an ascending triangle is the breakout point plus the length of the “pole” that precedes the triangle.
Conclusions and Recommendations
Ascending triangles are among the most bullish chart patterns. As discussed, these patterns are less common in pennies and hard to identify. However, if you spot one, the risk-reward for a good entry and exit is often strong!
Feel free to post a chart with an ascending triangle you have identified for feedback or discussion! Learn about other chart patterns!
