Some of the most well-known patterns used in technical analysis are triangle patterns. Today we are looking at the Ascending Triangle on STO.
Appearance: This pattern is easily recognisable, as it resembles a triangle. A horizontal line connecting multiple highs can be drawn indicating resistance above the current share price. A second ascending trend line is drawn below the stock prices connecting multiple higher lows, completing the ascending triangle pattern.
Context: An Ascending Triangle is a bullish pattern with traders generally looking for a Bullish breakout. The Ascending Triangle forms as a consolidation period within the uptrend and indicates upwards continuation will follow when the resistance breaks.
Breakout Expectation: A breakout typically occurs when the resistance is penetrated. A breakout sometimes occurs at about two thirds of the way into the triangle. A stock, which does not break prior to reaching the apex of the triangle is generally sluggish and often a less reliable trading candidate. To determine the expected price rise, which could follow, the widest portion of the triangle may be measured and added to the breakout point (resistance level). There are instances when Ascending Triangles form a reversal patterns. When bullish patterns fail, they can produce extremely quick and powerful bearish moves.
Example: The daily OHLC (open high low close) chart below illustrates an Ascending Triangle on STO as indicated by the trend-lines in blue. You can see the stock as recently bounced off the trend line, and may in fact continue on to break the resistance level, confirming the overall break out of the triangle. If this occurs, this is considered a strong bullish entry signal.
There are many ways that you could trade this type of pattern. As a derivatives specialist we often utilise bullish option positions or mini shorts in this type of scenario to capitalise on the rise in share price.