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.
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.
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 probably the most important confirming factor when it comes to this pattern. As the pattern takes shape, volume should be diminishing. When the pattern is confirmed and there is a breakout, volume should spike. Lacking this volume spike at breakout, investors should no consider the pattern reliable and should steer away from making trade decisions based on it.
Moving Average
The Moving Average should also be taken into consideration. If the pattern’s prices touch or come close to the 200-day moving average, then the pattern is considered strong.
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.
As far as providing a fundamental explanation for why this pattern occurs, investors should consider a company or a institutional investor who wants to offload a large quantity of stock at a pre-determined price level. As the stock price reaches such a level, buyers will draw on the large supply and will consequently push the price down, forming something of a resistance level. However, as prices bounce back and the supply is depleted, the price will shoot through the previous resistance levels to new highs. This is exactly what we like to see when we start to learn technical analysis — the perfect end to a classic pattern.
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