When You Learn Technical Analysis, Don’t Forget The Ascending Continuation Triangle

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.

The importance of the Ascending Continuation Triangle as it relates to investors who want to learn technical analysis is that it is a bullish signal. Typically, it is a short-term pattern that forms between one and three months. This allows for quick gains and also for lesser losses if the pattern was false.

Investors who have just begun to learn technical analysis will actually find it more difficult to remain patient as they confirm the pattern than it is to spot the pattern. For confirmation, investors should look for the following.

Volume

This is by far way more important than any other fact. As the price swings back and forth during its rallies, volume should diminish. When the pattern is confirmed, volume should spike (or be above the average while the pattern took shape). Alternately, if there is no spike at breakout, then it is more likely that this pattern is less reliable.

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

For people who are just starting to learn technical analysis, keep in mind that the break-out (penetration of the upper, horizontal line) should happen well before the pattern actually reaches the apex of the triangle (the right-most tip). In fact, break-out should occur roughly three-quarters to two-thirds of the way along the upper line.

For investors seeking an explanation as to who this pattern occurs from a fundamental basis, consider a company or large shareholder who wants to sell only at a predetermined price. When the price reaches such levels, the supply of stock will dwindle and push the price down. Until that supply is depleted, this price level will form a resistance line (the upper, horizontal line). However, once this supply is exhausted, the price will break out, which is where people who want to learn technical analysis will see confirmation of such a pattern.

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