Listen to the Podcast
Subscribe to the podcastiTunes Stitcher
Today we're going to go back into the basics of looking at technical analysis and some patterns.
We're going to look at the ascending triangle which is a continuation pattern. That means it continues from the previous trend.
We're going to take a look at:
- what it looks like
- the previous trend
- entry points
- a few tips
These are the points that we're going to cover.
What Does It Look Like?
When you're looking at this ascending triangle pattern, it's going to create a trend that is similar to this.
Now as you make your way and move into this, it'll come up and hit that first level of resistance over here. It'll come down and probably hit another level. There is your support level as we go into the lower level of the triangle.
It could bounce around. It might go into a second point. Finally, we'll break out somewhere. Maybe about 80% of the way of that triangle. You're breaking out somewhere at that level.
The thing to remember is it might hit these points three or four times. But there's your breakout point. That's what the ascending triangle looks like.
The Previous Trend
The previous trend is an uptrend. That means your next trend is also an uptrend as well. That's because it's a continuation pattern.
When you want to look at where the stock is going you're always looking at the volume. You want to see strong volume here at the beginning) coming in but then I'll probably die out. That's why we get that pullback. We understand the selling pressure that comes in.
Then again you get more volume usually on these upward movements. Now sometimes as we go into this triangle pattern, the volume actually may decline. As you compare ticks for ticks, so as you look at maybe the closer ticks daily typically the bullish of volume will be higher than the bearish volume.
The trend may decline. That's because you're just consolidating, distributing, waiting and digesting this move. And then what happens is later you'll get that influx of more volume as we break out again. The volume will pick up and start to accelerate on that breakout.
When Do We Look at The Projection?
You're looking at this range between the triangle. I like to look at a little more conservatively. Look at this big range from that swing point to that bottom range of the triangle.
Does it always hit that exact point? No. It's just a guide. Give it about that much, so we move over here (above triangle). It'll probably hit somewhere around that region from the breakout point. You're looking at the big base of the triangle from that rejection to the bottom.
In other words, from the resistance to the support. After that, take that, move it over to where the breakout point is and that's the target arrange. Would I take some profits before I hit the target? Absolutely. If you had a hundred shares take off maybe 70, 80 shares.
Whatever the case may be on your risk management style. But that's what you're looking for when you're looking for the projection.
You don't know if this could be a triple top. A triple top typically will hold support (a little more flat). But this thing could roll over and head down.
Because of that, you need to be careful about this. That's a little tip. Typical entry point if you do get that breakout right there this would be the entry point. It's right after we break out of that resistance level on that triangle.
At times you'll get this to roll back and bounce. That way you could get a second entry there if you miss the move. It doesn't always happen. Sometimes the breakouts are fast. But sometimes you get a pullback, and then you get a bounce. That could give you an excellent entry point as well.
If the stock ends up rolling over and this is sending triangle pattern doesn't work out you could look at a shorting opportunity somewhere over here right under that support level.
That scenario can appear if you get bad economic news or something like that. It's important to look for volume to pick up and where the volume picks up and where the price goes that's where the stock is going to go.
If you're getting the breakout, you'll get a continuation here to the bullish side. You'll want the volume to pick up, but it doesn't always happen. Keep an eye out. That's why your entry point is above the resistance level. That way you can be a little more sure that it doesn't roll over.
That's my thought and inside on the ascending triangle pattern. These are just guidelines of what you're looking for. Here's our resistance level. It could be creating a pattern. If that pattern is created, you're looking for that breakout that could be an entry point.
Remember it could still pull back a bit to retest that resistance level which becomes support once it breaks it. And then your projection or target area is about that range from the fatter part of the triangle. Take that and see how far it can go there.
The Ascending Triangle Pattern With Ticks And Candlesticks
Here you get a little better insight on what it looks like. Here we have HOG or Harley-Davidson from 1991 to 1993. It's a good example because I find that it's spotless and clear cut. The stock was right around $0.5 to $3 a share.
Stock price continued to appreciate there with time strike at the beginning. I find that this pattern works out very well for moving costs to the upside. What happens in 1991 is we got into a resistance level right around the $4 range. You can see those sweet points a couple hit a couple of times.
The stock price also tried to continue to compress into that triangle level. Between four dollars we were hitting that $4 range and then moving back down to $2.5. Then we hit it again at $4 moved back down at $3. Then finally when we hit third time (you could say a double top that broke out), then we finally broke out past that $4 range.
Notice the increase in volume. Yes, it was a minor increase in volume. However, it did pick up and allowed that stock price to continue moving into higher prices with time.
That's the ascending triangle pattern that I find it works very well. But you can see also that sometimes this can confuse you with a double top. That is the place where stocks could roll over. That's why it's crucial for you to pay attention to what's also evolving on the lower range or the support level of the stock. It's also essential looking at when things break out.
Example of American Express
That one hasn't fully evolved or matured yet. But I want to show you one that's developing. Here we have American Express which is 2018-2019 which is very recent to the current time.
As we look at this right around the $104 range in American Express, you can see we're creating resistance right around that $103-$104 levels. It's hitting it maybe four, five or seven different times. As we go from 2018 January to about August time you can also see we go from about $88 to about $100.
The stock price continued to move higher from 2017 to 2018. We got into $104 a share. We pulled back to about $88 a share. Then we got back into $104, and we pulled back to about $92. After that, we got back to $104, and we pulled back to $96. Got back to $104, pulled back to $100.
And then we finally broke out right here at about $104-$105 a share. Now the volume still is not increasing in a big way. It's not an increase in volume on the breakout yet. It could happen, and it could evolve, and more volume could pick up with time. That's because this is the weekly chart. So, it may take a couple more weeks for the volume to pick up.
We'll see with time if this pattern pans out and works out. But you can see that there's a pattern that we're looking at as it's evolving into the future. And we're not sure if it's going to evolve and manifest into a good trading pattern. That's a pattern right there that you can see on the screen that's evolving right now.
You've learned a little more about the ascending triangle. That one is a continuation pattern which means that it continues from the previous trend.
I hope you found it helpful and insightful to learn a little more about technical analysis.