The pennant chart pattern is a trend continuation pattern that forms in the middle of a price move following a sharp advance of trend. It can occur in both bullish and bearish markets. 

The pennant chart pattern is a consolidation pattern that falls under the trend continuation category. It is formed over a shorter duration than some chart formations and is typically seen in more aggressive trading environments. Typically, the pennant forms around the halfway point of a developing trend. A breakout of the pennant provides an entry signal in the direction of the trend.

In this article, we will review the identification and use of the pennant, how to trade the price formation and discuss the pennant relative to other common 

The pennant chart pattern is a trend continuation pattern that occurs in both bullish and bearish markets. 

It is formed following a sharp advance of trend, either up or down, as the price starts to trade in a tightening range that takes the form of a small symmetrical triangle. Frequently, it occurs in the middle of a price move which identifies the beginning of the second half of a trend. 

It is a fairly common pattern and can occur relatively frequently in all time frames, but is seen more often in short-term timeframes. Pennants are similar to flag patterns as far as they each have a sharp rally creating a flagpole before the consolidation phase. Two trend lines identify the boundary of the pennant, with an upper trend line across the top angled downward and a lower trend line across the bottom angled upward so that they will cross at the apex of the triangle and point horizontally.

For a proper pennant to occur, it needs to be preceded by a sharp and steep rally (

) or a steep and sharp decline in price (

).You should see signs of aggressive buying (bullish pennant) or selling (bearish pennant) with strong relative volume prior to the pennant being formed.

A breakout will typically occur in the direction of the trend before the pennant formation. The aggressiveness of the prior trend is an important clue as to what to expect once the price moves out of the formation. More aggressive trends that occur before the pennant forms tend to have more powerful subsequent moves.

A proper pennant usually consolidates for a couple of weeks and up to three weeks maximum. If it goes longer than that it is likely evolving into a larger pattern, such as a symmetrical triangle, or it could lead to a failure. A failure is when the price moves in the opposite direction from what is anticipated. 

During the formation of the pennant, the volume should decline. However, upon a breakout, the volume should spike reflecting enthusiastic buyers or sellers and the chance for a sustained move up or down. The extended breakout period is why traders are so fond of using this pattern.

The pennant pattern is used as a trend continuation pattern whereas the wedge pattern can be both a trend continuation and a reversal pattern. Also, there is no requirement for a flagpole with the wedge. A preceding trend is all that is needed.

Pennant Pattern vs. Symmetrical Triangle Pattern

Both the pennant and symmetrical triangle patterns are trend continuation patterns and are similar in that they each take the shape of a symmetrical triangle. The primary difference is that the size of the pennant triangle is smaller than the symmetrical triangle. Also, the pennant requires a sharp steep trend preceding the consolidation whereas the symmetrical triangle just needs to be in a trend of some sort.

Pennants and flags are each considered to be trend continuation patterns and they include a consolidation phase. The primary difference is the shape of the consolidation following a flagpole as noted below.

The pennant is traded on a breakout in the direction of the trend. However, there are several entry strategies you can take to ride the trend. 

The following example looks at a classic entry on breakout for a bearish pennant. The flagpole is measured from where it broke down at $6.48 (1) to the bottom of the pennant at $5.68, for a drop of $0.80. We then subtract $0.80 from the breakdown trigger of $5.98 (2) to arrive at a measuring objective of $5.18 (3). You then place your initial stop just above the resistance trendline to cut losses. For bullish pennants, you should place your stop beneath the support trendline.

John Murphy, author of the classic technical analysis book 

Technical Analysis of the Financial Markets

 writes that the pennant pattern is one of the more reliable trend continuation patterns in 

. Yet, a study by Thomas N. Bulkowski in his book 

found it less reliable than some other patterns.

Bulkowski tested the performance of over 1,600 pennant patterns identified with particular parameters for consistency. He found that the breakout failure rate for both up and down moves was 54% for each direction with the average move following a trigger around 6.5% (initial move). Meanwhile, the success rate was 35% for upside moves and 32% for downside moves. Of course, the above analysis reiterates the reason why active 

 is critical for trading success as patterns often fail.

Keep in mind the pennant results may be a little low as Bulkowski notes that tests for the pennant only looked at short-term price swings, not the change from the breakout to the eventual high or low, as he did for other pattern tests. With this, it is assumed that the results could improve if larger moves were taken into account. 

Frequently, traders will use pennants along with other forms of 

 to assist their decision-making process and improve their chances of success. 

A bullish pennant occurs within an uptrend and starts with a sharp, steep rally called the flagpole. It is followed by a short period of consolidation that takes the form of a pennant or small symmetrical triangle. The bullish pennant is formed as price rests before it continues its rally to higher prices.

 is found in a downtrend and begins with a sharp, steep decline that forms the flagpole. It is followed by a short period of consolidation to form a pennant. The bearish pennant forms as price rests before it returns to its decline to lower prices. Once the price breaks below the lower boundary line, a bearish short-sell signal is triggered.

Despite their differences, the same approach can be applied to both bullish and bearish pennant patterns when trading. The only difference is that you trade with a 

 for the bullish pennant and enter with a short trade for the bearish pennant.

The pennant pattern in technical analysis is considered to be a trend continuation pattern as it is expected that the breakout will occur in the direction of the trend. It is one of the shorter time-frame patterns as it completes within three weeks or less. Meaning, a breakout (or pattern failure) should occur before the three weeks are over. The key to success with the pennant is the quality of the trend leading up to it. You should look for a sharp and steep run before the consolidation occurs as the aggressive trading that occurs before the pennant forms is likely to continue after the breakout.

Candlestick Patterns Professional Traders Use

Intermediate

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Pennant Chart Pattern: What Is It & How to Use It For Crypto Trading?

Bullish engulfing candle signal traders an upcoming reversal in price trends. Learn how to trade strategically with these signals today.

The bullish engulfing candle is a Japanese 

 that can help traders analyze the market sentiment and identify a new bull trend when it is kicking off. Meanwhile, a bearish engulfing pattern indicates a confirmation that sellers are shorting, hence signaling a potential trend reversal. Once you are familiar with the bullish and bearish engulfing pattern, it is easy to spot, providing traders with good risk-to-reward ratios.

As you read this article, we will help you understand what a bullish engulfing candle is, when and how this pattern appears, and how to trade with it. We’ll be including some tips and tricks to apply the bullish engulfing pattern to crypto trading. 

The bullish engulfing candlestick pattern refers to a bullish trend reversal when preceded by a cluster of red or black candlesticks showing a bearish trend. It is useful for signaling the start of a new uptrend, as the bullish green or white candle body completely surrounds or engulfs the previous day’s red or black candlestick.

When bullish engulfing occurs, it means more buyers entered the market, pushing the price upward, hence resulting in a trend reversal. This candle usually occurs at the bottom of a downtrend.

Characteristics of the Candlestick Formation

The bullish engulfing candlestick pattern is a two-candle formation (candles A & B below).

 (A) must be a down candle, colored red on most charting packages (or black if using a white/black color scheme). The size of the red candle can be large or small. The key to the pattern is the size of the second candle.

 (B) will need to engulf or overlap the first candle. Technically, this means the opening price for the second candle must be lower than the closing price of the first candle. However, in the crypto markets, there is no opening or closing of a trading period. You can transfer coins 24 hours a day, 7 days a week.

Consequently, the second candle simply needs to overtake and engulf the first candle.

When Does a Bullish Engulfing Pattern Appear?

The bullish engulfing candlestick pattern is a bullish reversal pattern found at the end of a downtrend. When visible, this bullish pattern signals that the previous downtrend has ended and a potential reversal trend (a new uptrend) is beginning.

First, there needs to be a correction of an upward movement. From January 2021 to February 2021, Bitcoin’s uptrend resulted in a 100% price increase. Bitcoin then experienced a partial correction, trending lower to February 28, 2021.

Second, there needs to be a kickoff to the resumption of the old uptrend. On February 28, 2021, Bitcoin rocketed higher after the partial retracement. The bullish candle engulfed the previous candle, signaling a bullish reversal.

After Bitcoin carved the bullish engulfing pattern, the market extended higher by another 48%.

How to Trade Crypto with a Bullish Engulfing Pattern

A bullish engulfing pattern technically requires the second candle to open lower and reverse high enough to fully engulf the first candle. However, since the crypto market is operating 24/7, therefore, it is extremely rare to have a gap lower at the same time a new candle appears. 

The chart above, involving Bitcoin, is a great example of what to look for in a bullish engulfing pattern.

Notice how the wick on the right (green) candle ends below the wick of the left (red) candle. This signals the market briefly traded lower before accelerating higher. This brief penetration lower, though not required, strengthens the signal for the engulfing pattern.

The engulfing pattern is confirmed as being completed when the second candle closes above the opening of the first candle. At that point, the trader can open a bullish position in the cryptocurrency with a 

 just below the swing low of the engulfing pattern.

Sometimes, the market will consolidate because prices have just rocketed higher. Conservative traders may wait for a breakout above the high of the right candle to occur and then enter long into the position. A break above the high would confirm a resumption of the uptrend. The significant risk would be set at the same area, just below the swing low.

Advantages of Trading the Engulfing Pattern

The bullish engulfing pattern is followed by many traders primarily for a couple of reasons. 

First, the pattern is very easy to identify. Engulfing is a two-candlestick pattern in which one of the candles produced is extremely large. As a result of the large candle, the pattern is easy to spot on a chart, once you know what to look for.

Secondly, after the engulfing pattern is confirmed as being completed, you can receive an attractive risk-to-reward ratio into the position. 

The stop loss and risk level for trading can be placed at the swing low of the engulfing pattern. This makes it relatively easy for traders to target at least twice the distance of their stop loss, creating a 1:2 risk-to-reward ratio. 

Th risk-to-reward ratios are important for managing trader profitability. A 1:2 risk-to-reward ratio means that even if you win on only 50% of your trades, you will still be profitable.

Bullish Engulfing Pattern Trading Tips for Crypto

As you can see, there are several advantages to trading the bullish engulfing candle pattern. However, by itself, the pattern is limited to its effectiveness. Just as multiple strands of a cord make the cord stronger, other tools can be used to complement this bullish engulfing pattern — making the engulfing pattern stronger.

Below, we’ll share three tools to help strengthen the signals.

Tip #1: Horizontal Support for the Engulfing Candlestick

If the crypto market is in a strong uptrend, then we will see a series of higher highs and higher lows on the price chart.

Each new higher high is breaking above an old high. After successfully breaking above the old high, prices tend to consolidate and correct. Within the crypto market, it is common for prices to retrace back to the old broken high.

In the example above, Bitcoin had gained 224% and needed to consolidate. It corrected about 20% and landed near $10,120, which was a previous high price back in May and June of 2020. A bullish engulfing pattern emerged, which was the start of a 500% uptrend.

If a bullish engulfing candlestick pattern appears near an old broken high, then we have a strong signal that the bullish trend is ready to resume.

Tip #2: Trend Line Support Near the Engulfing Pattern

It is quite common for the crypto market to scream higher without taking much of a break. Therefore, the old highs and broken resistance may never come into play, yet the market continues its upward trend.

Another tool to help you strengthen your engulfing signals is a bullish support trend line.

The bullish engulfing candlestick pattern provides its best signals after the market has consolidated lower. If this consolidation is terminating and reversing at a bullish trend line with a bullish engulfing candle present, then the market is giving you a strong bullish signal.

In the image above, we see LINK trying to recover from the March 2020 pandemic sell-off. As the uptrend began to take root, LINK carved a pattern of gaining, then consolidating.

An uptrend line could be created with the ending points of the corrections. Sure enough, LINK popped higher at the trend line, with a bullish engulfing pattern sending the altcoin up 25% in a couple of days — and by nearly 8x over the next 4 months.

Tip #3: Moving Average as a Bullish Engulfing Pattern Indicator

Many traders and large institutions keep a close eye on an indicator called the 

, as it provides technical support to the market. 

If the crypto price chart corrects down to the moving average and the engulfing pattern carves, this is a strong signal the trend may reverse higher.

In the image above, we are looking at Bitcoin on a 4-hour price chart. Bitcoin was correcting its previous uptrend and tagged the 200-period simple moving average. At that point, a bullish engulfing pattern appeared to kick off another trend of 250%.

The simplicity of spotting the bullish engulfing candlestick pattern makes it a popular choice among traders. The engulfing pattern does offer traders an attractive risk-to-reward ratio when using it to enter into crypto trades. 

To receive the biggest benefit of trading the pattern, we suggest coupling the pattern with other charting tools for technical analysis support. For example, a market correcting down to horizontal support, trend line support, or a simple moving average followed by a bullish engulfing pattern is a strong signal the trend may continue higher.

 – A curated list of candlestick patterns most frequently used by traders

 – Learn the basics of candlestick patterns

 (Chart basics: trend, neckline, wedges)

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How to Use a Bullish Engulfing Candle to Trade Entries

The cup and handle chart pattern indicates a bullish trend and makes buying opportunities easy to spot. But is this pattern reliable? Learn more.

The cup and handle indicator is a technical pattern found on crypto price charts. It indicates the correction of a previous uptrend and eventually signals its resumption. The pattern exhibits clearly defined entry and risk levels but can be difficult to interpret in crypto markets due to fragmented volume metrics.

This trading guide explains the importance of the patterns and how you can formulate a strategic trading style to make the best out of it. We’ll be discussing the ins and outs of the indicator and to help you understand some of the limitations. 

A cup and handle pattern is a consolidation chart pattern signaling bullish in which prices correct a portion of a previous uptrend, then rebound back toward the previous high, forming the “cup.” Prices then trade sideways, creating the “handle” which, when completed, signals a breakout to new highs.

. I learned to trade stocks 20 years ago using his methods, including the cup and handle pattern. This pattern is found a lot in the stock market and is beginning to appear frequently within the crypto market.

The cup and handle pattern can be found within a variety of time frames, from hourly, weekly to monthly charts. However, it is more powerful on daily chart time frames. There are a couple of variations of the pattern, but they all have a similar look.

Characteristics of the Cup and Handle Pattern

The cup and handle pattern appears after a big rally where the market needs to pause and catch its breath. The pattern consists of five key components, which then lead to a breakout higher.

The first four components help shape the structure for the pattern’s name because they form the outline of a cup with a handle.

After a big uptrend in price (#1), the market begins to correct lower (#2), shaping the first half of the cup. The dip in #2 generally retraces about 30–50% of the length of the previous uptrend. However, there are instances where a deeper correction may take hold. Once a bottom is formed, prices will begin to rally (#3). This rally pauses within 10% of the previous high. At this point, the cup portion of the pattern has been created. 

Now that prices are near their old high, bullish traders stop buying and wait to see if a breakout takes place. Traders who bought near the old high are thankful and nervous at the same time. They are thankful that prices have rebounded back to the old high, but nervous about another selloff. They are considered weak hands. Hence, selling the asset gradually, creating the handle (#4). 

However, the total volume begins to decrease as the market is running out of sellers. The price trend is from sideways to slightly lower, and it carves the handle of the pattern.

In the end, the pattern takes the shape of a coffee cup with a handle on the right side.

The pattern is confirmed when prices break above the high of the handle as the previous uptrend continues.

The cup and handle pattern cannot exist without a prior uptrend. As a result, the pattern is found frequently within the crypto market.

There are a couple of variations to this pattern that crypto traders need to be aware of. First, there are times when the handle portion of the pattern develops above the old high. This is considered the “high handle.” Secondly, since the market is fractal, these patterns will form on a variety of charting time frames, including intraday charts.

One of the characteristics of the cup and handle pattern is that the handle must form within 10% of the old high. There are times when the market is extremely bullish and the handle pushes slightly above the old high but remains within 10% of it. These situations are considered to have a high handle.

In the above example, we see a cup with a high handle. The handle forms above the old high, rather than below. The result of the pattern remains the same where it is a minor breakout higher, but then prices trade sideways on declining volume to form the handle. The pattern is confirmed when the market breaks above the highest price of the handle.

When William O’Neil first identified the cup and handle pattern, the focus was on daily chart time frames. Now that charting software has made access to intraday charts easier, variations of this pattern have emerged such that it can be found within intraday chart time frames.

The intraday pattern operates similarly but concludes more quickly. In the Bitcoin example above, we are using a 4-hour chart. All of the necessary ingredients are present, including the volume spikes. During the retracement portion, you want to see increasing down in volume. On the rally portion of the cup, you want to see increasing volume. Then, during the formation of the handle, trading volume will ideally shrink as both buyers and sellers are shaken out.

The Bitcoin chart above also illustrates a high handle, which we discussed in the previous section. After the successful cup and handle portion of the chart, Bitcoin breaks out and accelerates higher.

The inverted cup is the reversal pattern indicating a momentum sell short signal signaling a bearish continuation pattern. The chart patterns happen within a span of three to six months and volume plays a role in the completion of the pattern and the confirmation of the breakout from an uptrend. At the same time, the inverted cup top is formed when there are more sellers bidding for the price to go down. When it happens, it indicates the end of the bull markets.

The inverted handle pattern forms when the asset emerges out and begins to fall from the right side of an inverted cup. However, a true inverted handle happens when it fails to break down and finally meets the 

To spot a true inverted cup and handle pattern, the shape needs to be obvious and the trend line needs to curve up and then down like an upside-down cup. When this reversal pattern happens, it tells you that it is not a good probability to trade if pullback or correction is not on the way.

How To Identify the Cup and Handle Pattern

The cup and handle pattern starts with an uptrend, followed by a 30–50% correction. Use the Fibonacci retracement tool to measure out the previous uptrend, then look for the correction to retrace near the 30–50% zone.

After the market has retracted into the 30–50% zone, look for a rally to begin pressing prices back toward the old high.

As prices approach the old high, a failed breakout traps both recent buyers and buyers at the bottom of the base. Recent buyers see their small floating gain evaporate, and buyers at the bottom of the base fear a 

Both sets of buyers exit the market; as a result of this entrapment, these buyers are nervous and slowly sell out, creating the handle of the pattern.

The handle must form in less time than it takes to form the cup. On most occasions, the handle will form in about 1/5 to 1/3 of the time required to form the cup. 

Additionally, the handle needs to stay in the upper half of the cup and not drop into the lower half of the cup’s price range. For example, if the cup forms between a price range of $1.0 to $2.0, then the handle needs to form within $1.50 to $2.0. If the handle pushes too low, then it will be ineffective at trapping short sellers.

An effective handle will drift lower, rather than trend lower. This sows doubt among short-sellers, who become nervous about the failed trend to the downside. As a result, they close out their positions, which adds a little buying pressure to the market, popping the price a little.

Then, new buyers enter the market as they see the technical setup complete, pushing the market above prior highs. This adds even more strength to the bullish trend.

The cup and handle pattern is an effective combination to flush out weak holders. 

To trade the cup and handle pattern, wait for technical levels of resistance to break. There are two areas where traders can buy the resistance break. 

First, draw a resistance trend line encompassing the high prices of the handle. A break at the resistance trend line is your signal to buy. The second opportunity to buy is a break above the high of the handle. Waiting for a break above the handle’s high is a more conservative approach, as you are seeking confirmation from the market that the price is hitting new highs.

The risk and stop loss on the trade will be set at the low of the handle. This way, if the breakout fails and falls back below the handle’s low, then you can close out the trade at a small loss and move on to the next opportunity.

If the breakout is successful, then you can consider moving your stop loss to the breakeven level, locking in the trade without experiencing a loss.

The target for the cup and handle pattern is fairly simple. Measure the distance from the cup high to the cup low and project that same distance beginning at the handle’s low point. So long as the handle remains in the upper half of the cup, this level of price projection leads to an attractive risk-to-reward ratio on the trade.

Here is an example of the cup and handle pattern in a Bitcoin chart from 2019. 

After rallying 25%, the market corrected lower approximately 50% on increasing bearish volume. Then, the market rallied to come within 3% of the previous high.

At that point, the cup of the pattern was completed and the handle was about to begin. The handle drifted lower on decreasing trading volume. The pricing of the handle remained within the upper portion of the cup, so all of the necessary ingredients were present for a bullish breakout.

Once the handle was finished, Bitcoin rallied higher on increasing volume, which led to new highs.

Below is another chart, a cup and handle example for Ethereum.

After rallying 300% to begin 2021, Ethereum began consolidating the uptrend to form the cup. The cup was relatively shallow, at nearly 30% of the previous uptrend. After correcting, the price rallied back to near the old high to finalize the cup.

As the handle began to develop, its slight downward slope, coupled with decreasing trading volume, was a big clue that this may be a minor consolidation. This was a relatively long handle, but once it had finished, Ethereum rallied on increasing volume.

Indicators To Identify the Cup and Handle Pattern

Aside from having a clearly defined pattern with specific entry and exit parameters, this chart pattern is a favorite among traders because it is simple to identify. There aren’t a lot of fancy indicators or technical tools needed to spot the pattern.

 needed to help you identify the pattern:

As you know by now, the pattern consists of two parts, the cup plus the handle. The pattern cannot be anticipated until nearly all of the cup is completed and the price is near the old high.

As a result, the trader will need to highlight the old high with a horizontal resistance line. Additionally, as the right side of the cup is created, we need to observe several bullish candles on rising trade volume. An easy way to figure this out is to place a 50-period 

This moving average indicates the average volume for the last 50 periods. You want to see several bullish candles with volume above the 50-period moving average, while most of the bearish candles remain below the moving average. If a large bullish and bearish volume candle are next to each other, you want to see the bullish candle display a higher volume than the bearish candle.

Once the cup is completed, the handle will begin to develop. The handle will be marked by sloping trend lines. These trend lines should have a slight downward slant to them. The important trend line is the resistance trend line, which is the top line. If prices break above resistance on rising volume, then the market will likely continue its trend higher.

Limitations of the Cup and Handle Pattern

Like any form of pattern and technical analysis, there are times when this predictor works well and other times when the forecast does not work out. There are situations when the reliability of the cup and handle pattern is diminished.

The cup and handle pattern is the result of a bullish breakout. When the broad market is in a bullish trend, that makes the breakout a higher probability move. However, if the broad market is in a bearish trend, then a bullish breakout is less likely to occur. 

Bitcoin and Ethereum are the two largest cryptocurrencies, commanding approximately 60% of crypto’s total 

. If both Bitcoin and Ethereum are in an uptrend, then the chance of a bullish breakout is higher. If both Bitcoin and Ethereum are in a downtrend, then a bullish breakout has a smaller chance of occurring.

Apply the Cup and Handle Pattern to Large and Growing Cryptocurrencies

A major limitation to the cup and handle pattern is evidenced when applying it to small cryptocurrencies that do not have a large following. The cup and handle pattern works best with cryptocurrencies that are growing their following. The more buying and selling interest that exists, the better the gauge of the pull between buyers and sellers. 

Overall Volume Makes a Difference but It May Be Difficult to Obtain

 of a crypto asset makes a difference in determining a cup and handle pattern. However, crypto trading takes place on many different exchanges — and even off the exchange. Therefore, arriving at an accurate volume figure is extremely difficult.

The cup and handle pattern has been around for over 30 years and is widely followed by many technical traders. Though limitations of the pattern are not to be ignored, the strong trends in crypto help make the cup and handle pattern effective in trading crypto markets.

Cup and Handle Pattern

Cup and Handle Chart Pattern: How To Use It in Crypto Trading

The ascending triangle, also known as the rising triangle, is a continuation pattern that occurs within a trend. It is a bullish chart pattern and is primarily watched for in uptrends.

The ascending triangle, also known as the rising triangle, is a continuation pattern that occurs within a trend. It is a continuation pattern as it typically triggers a breakout from the trend. 

In this article, we’ll review what an ascending triangle pattern is, what it looks like and how to trade the pattern, along with the advantages and limitations of using this chart pattern. 

In technical analysis, there are three types of 

 – symmetrical triangle, descending triangle and ascending triangle. These patterns can be used to establish trade setups for trading breakouts. Each is a consolidation pattern that is looked for within a trend.

The symmetrical triangle is a neutral chart formation although it is generally looked at as a trend continuation pattern. An ascending triangle is bullish and is primarily watched for in uptrends, while a descending triangle is a bearish trend continuation pattern. As with any price pattern, traders also anticipate an opportunity in pattern failures. In other words, sometimes the failure of a consolidation breakout can also lead to trading opportunities for more aggressive traders.

Given that the ascending triangle pattern is a bullish trend continuation pattern in technical analysis

 consolidation phase, uncertainty among market participants increases, creating choppy price action as the prices rise and fall relatively rapidly.

This pattern is identified on a chart with a horizontal trendline across the top of the pattern and a rising line along the bottom, forming a right-angle triangle. At least two matching price highs are needed to draw the horizontal line. Usually, a horizontal line is valid by connecting only one high, whereas in an ascending triangle, there should be at least two to ensure a valid horizontal top. 

What the price action is showing during pattern formation is that buyers are getting more aggressive than sellers over time as they step up to pay higher prices rather than waiting for the price to fall to prior support within the pattern. This trader behavior creates the uptrend line. If the ascending triangle performs as anticipated, eventually the buying pressure will push the price up above the horizontal price line and trigger a breakout with a pickup in momentum.

As with all consolidation patterns, a breakout should be accompanied by a higher volume. If not, the potential for failure increases. A pattern is not a valid pattern until a breakout occurs, rather it is a potential pattern. A decisive close above the breakout level will eventually complete the pattern.

The volume should be declining as the pattern forms, reflecting less interest from traders over time. Also, the point at which the price is relative to the apex (intersection of the two lines) of the triangle tells us something about when a breakout might occur. A breakout should occur before filling more than 75% of the pattern, if not, the potential for failure increases. And as a consolidation pattern, the ascending triangle may also evolve into larger or different patterns.

Although this pattern is used for bullish signals, there is also the possibility of a false breakout or pattern failure. Over the years, as technical analysis knowledge and tools have become more widespread, traders seem to also be using trend continuation patterns like ascending triangles for signs of failure and bearish reversals more often than their traditional directional use.

A false breakout occurs when the pattern fails to follow through as anticipated after the breakout. It loses momentum, and subsequently falls back into the price area represented by the triangle or even lower. 

Alternatively, a pattern failure may occur before there is a breakout signal. Once a pattern failure occurs, the pattern is either evolving into a larger or different consolidation pattern, or a bearish reversal is occurring. The classic entry for a pattern failure occurs on a decisive drop below the rising line or below the more significant swing low at the beginning of the uptrend line.

Measuring the Profit Target for an Ascending Triangle

A measuring objective is calculated from the range of the pattern to identify the minimum profit target based on the pattern. Take the high to low price at the points in which the pattern begins to form. In this case, the points are where both lines exist and where the lower line begins. That price range then gets added to the breakout level to determine the initial profit target.

How to Spot an Ascending Triangle Chart Pattern

To find ascending triangles, you need to first find rising price trends. Then, look for consolidation to see if the criteria for drawing two lines holds for the pattern you are studying.

Below is a weekly chart of ETH/USD, showing the price moving into consolidation following a sustained advance of lower prices. The pattern of consolidation can be recognized by drawing the two lines on the pattern perimeter. In this case, the upside breakout occurred as expected.

In the second chart below, there is a potential ascending triangle identified in a 4-hour chart of BTC/USD. Confirmation of the pattern occurs on a breakout trigger above the horizontal line. So far, we don’t see such a breakout and the pattern is still evolving. It is not yet a valid ascending triangle as a breakout above the horizontal line has not yet occurred.

As with all consolidation patterns, the ascending triangle can be used to build a specific trade plan by only using the parameters of the pattern. The classic entry would be on a breakout above the high of the pattern, which is marked by the horizontal line.

For better assurance that the breakout is real and has the potential to keep going, most traders would look to buy around $0.08 to $0.15 above the horizontal line. Nevertheless, nothing is for sure, so you should always be prepared by using a 

Let’s now look at one of the strategies to establish a trade plan by only using the ascending triangle pattern. The same triangle setup on the weekly chart of ETH/USD above will be used for this example. 

Through the rising trend, you can see the ascending triangle forming with its series of highs and lows. The price is getting closer to the apex of the triangle and therefore, a breakout or failure should occur soon.

Enter on breakout above horizontal pattern high. Enter at $405.09, which is $0.10 above the high of the pattern at $404.99.

Based on trader-specific risk management strategies.

Aim to exit at $0.10 below the support of the pattern. Since the bottom of the ascending triangle is upward-sloping, the rising trendline identifies the support. Therefore, a drop below it is a sign of failure. The price of $304.13 will be used as an estimate for the price at the line and $304.03 as the exit trigger.

The measuring objective is calculated from the range of the pattern to identify a minimum target. The high of $404.99 less the low of $134.78 gives us a price distance of $270.21. That distance is then added to the high, giving us a profit target of $506.15. This objective is used for the trade target.

Is this trade worth the risk? The standard minimum 

 that most traders look for is 3 to 1 (3:1) — risking $1 to make $3. To calculate the RR ratio for this ETH/USD trade, take the profit at objective divided by the potential loss: 270.21/0.75 = 360x. This is a very high reward-to-risk ratio given that it is ETH/USD in 2017, during which the trade is risking $1 to make $360, assuming the objective is reached. However, the objective is not always reached, especially given the volatility of cryptocurrency. Therefore, you should tighten your risk with 

 as your trade moves further into profits.

DISCLAIMER: Examples presented are for educational purposes only. It is not a recommendation to trade with real money. There is significant risk when trading crypto assets and readers should consult with an investment advisor before making investment decisions. 

Advantages and Limitations of an Ascending Triangle

Some risks lie within the limitations as well, so let’s take a quick look at how we might mitigate the impact. As with any trade, the chance for failure exists. Therefore, you will need to use a stop-loss to control your potential loss. The quality of an ascending triangle pattern will also vary between patterns. As you get more knowledgeable, you will be better able to pick one ascending triangle over another. Further, the location of the pattern within the larger pattern can provide additional insight. Finally, additional technical analysis tools, such as 

 can be used to provide greater context for the pattern setup, allowing a trader to pick the best setups among a group of possibilities.

 are consolidation patterns with rising bottoms, but the top lines are different with varying interpretations. An ascending triangle is a bullish continuation pattern as buyers work to push the price higher above the horizontal line. While the rising wedge may sound like a bullish pattern, it is actually bearish as it reflects the exhaustion of buyers over time. A wedge is also different in that it will be bearish in both a downtrend and an uptrend. For the rising wedge, both lines will head upward and eventually cross each other.

Ascending Triangle vs. Symmetrical Triangle

The symmetrical triangle pattern is generally looked at as a continuation pattern but its symmetrical nature makes it prone to a breakout in either direction. Converging lines are drawn across the top and bottom of the pattern, highlighting the bullish and bearish natures of the pattern respectively. This shows that the symmetrical triangle is conflicted as both buyers and sellers are getting more aggressive during the consolidation.

Ascending Triangle vs. Descending Triangle

An ascending triangle is bullish while the descending triangle consolidation pattern is bearish. Both are trend continuation patterns. A descending triangle is used primarily in bear trends. It is drawn with a horizontal line across the bottom of the pattern and a falling line across the top. Rallies off the horizontal area of the pattern are met with more aggressive sellers over time as reflected in the falling trendline. That selling pressure kicks in on a decisive drop below the horizontal price level, which is used for a bear trigger.

The ascending triangle is a bullish trend continuation pattern looked for in rising trends. It occurs when the price of an asset fluctuates between a horizontal upper trendline and an upward-sloping lower trendline. The upward-sloping line is indicating that buyers are getting more aggressive over time as the pattern develops. That aggressiveness is expected to show up as a burst of price momentum once an upside breakout occurs. All the information needed to establish a trading strategy is contained within the pattern, making it easy to use for both beginners and experienced traders.

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