Understanding Stock Charts

What is an Ascending Triangle?

An Ascending Triangle is one of those bullish chart formations that provide the framework to control risk and participate in a potential rally. An ascending triangle is a continuation pattern. That means it will typically continue to trend in the direction it was trending prior to printing the pattern. The Ascending Triangle is a nice pattern because it establishes a solid resistance level, and once the breakout occurs it can be a strong indicator for the future price direction.

There are ascending and descending triangles. Both ascending and descending triangles start with a straight, horizontal line across a few price points. In an Ascending Triangle pattern, all you need to find is two swing highs that reach a similar price level and two swing lows that are successively higher (stagnant highs, higher and higher lows). As you can guess, the highs will be the basis for our horizontal resistance level, while the lows will be the basis for an ascending support level. Can you guess what shape these trendlines will form together? A TRIANGLE.

After identifying the existence of an Ascending Triangle, you will want to see multiple trend line touches as the price ping pongs back and forth between the support and resistance levels as more touches tend to provide a more reliable indicator of an eventual breakout. As the price moves through this pattern and towards the triangle's vertex (the intersection of the support and resistance levels), the price consolidates to tighter and tighter levels. In turn, an eventual final battle between the buyers and sellers will take place and the price will either break above the resistance level or below the support level.

If it breaks above resistance, it is an indication to buy the asset because the pattern "predicts" the price will continue moving higher in an uptrend. The horizontal resistance level will become the new support level. If the price breaks below, a reversal has occurred and it is now considered bearish. This would be an indication to sell the asset.

Let's take a look at a few examples.

MU is a good example. Notice the flat horizontal line on top and the rising trend line on the bottom. If we continued with both lines, they would form a triangle.

The price hasn't yet been able to break above resistance, but each time it turns down, the decline is shallower. This series of rising lows shows buyer willingness to step in and buy at higher prices. The pattern suggests that eventually, the price will break above resistance and trend to its next price level. Now let's fast forward to the present to see how this pattern played out. 

As expected, the price broke out to the upside. Once the breakout occurs, the top horizontal line transitions from a source of resistance to a source of support. 

Another example is posted below. You can see that HPQ stock bottomed out in October and then began making a series of higher lows (uptrend). Each time it ran into resistance at around $31.10 it has fallen back and then reversed again at the uptrend, creating the ascending triangle. We don't yet know how this one will turn out, but this gives us a very simple trade setup that we can act on. 

Screenshot 2023-06-07 at 6.16.49 AM

Descending Triangle

Notice this pattern looks familiar, except it is upside down. Instead of making higher lows, it is making lower highs. This is a descending triangle. A break beneath the bottom red line would trigger the setup. Let's see how it turned out...

Once again, the triangle pattern predicted a profitable trade, this time for short sellers. Let's look at another one.

Screenshot 2023-06-08 at 5.54.50 AM

Ford is a great example of a descending triangle pattern and how it can be useful. We don't know how this one will turn out yet, but if you were currently long F stock you could watch this chart pattern closely for signs of what to do next. The stock has found significant support in the past around $11.00 and when it rallies off of there it runs into resistance near the falling 200-DMA, creating the descending triangle pattern. If support at $11.00 were to give way that would signal to us that the descending triangle had been broken and follow through to the downside was now on the way. We would exit our long position there.

Conclusion

Since triangles are a continuation pattern rather than a reversal pattern, it is useful mid-trend. This would be similar to a Wanderer Kiss-50 (available to subscribers) in that the price is already trending, but temporarily paused and worked sideways before having enough energy to break to a new level. 

Once you learn a couple of continuation patterns, you will have the ability to trade things that are already trending from their lows or highs. Typically, we will use a reversal pattern such as a Wanderer Double-B for an initial entry, and then look for a triangle or a Wanderer Kiss-50 to add to our position. 

Keep Up With the Wanderer Crew No Matter Where We Are

DCIM100MEDIADJI_0831.JPG

Living, trading, and running a business from a boat is pretty amazing. Just ten years ago the idea of doing all of this would have seemed impossible. While technically it may have been doable, it would have been a near constant headache, mostly due to internet connectivity.

These days, almost nothing stands in the way of a mobile lifestyle, whether retired, or working, or some mixture of both. In just the past year or so I've gone from Bonaire to Aruba on our boat, to across the US via motorhome, and am now on our new boat in the Marquesas after sailing from Mexico. Life is different in every location, but work and trading remain the same. The world is wide open to us vagabonds.

Ready to Learn & Explore More?

If you haven't done so already, it's a great time to subscribe. Whatever your dreams for a Wandering life include, the shortest path to finding them starts right here. You don't have to do it the hard way by learning on your own and making costly mistakes. The financial education and professional trading strategies alone are worth the cost of an annual subscription. But when you add in the guidance and advice shared by hundreds of experienced Wanderers who are already living a SELF-dependent, pretired life–now that is truly priceless.

The world is waiting. Join us and hundreds of successful Wanderers and subscribe today.