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A well known bullish formation and continuation pattern called the ascending triangle occurs during an uptrend and is constituted of two trend lines where the first one is a resistance line (horizontal line) and the second one connects two or more troughs.
In technical analysis, the ascending triangle formation is visually easily recognizable and it is often used by traders and technical analysts in different markets including the Stock Market, Forex Markets and Futures Market.
This trading pattern is traded by entering a long position when the security's price closes above the top resistance line. Some traders buy the security as soon as it breaks the resistance without waiting the end of bar's formation.
As a continuation pattern, the ascending triangle occurs in an uptrend after a period of consolidation. During this period, volume usually decreases and then suddenly increases (This is not a mandatory condition for the formation of this technical pattern) when the stock or security crosses above the resistance line of the ascending triangle pattern.
Once the trader enters/buys his position, the resistance line of the ascending triangle becomes a resistance and therefore acts as a limit stop. After an ascending triangle breakout, technical analysts usually seek for exiting their positions when it hits the limit (the old resistance level, which becomes a support level) or when it moves above a threshold that corresponds to the height of the triangle plus the buy price.
Example:
If during the formation of the ascending triangle the close price of the stock oscillated between 20$ and 30$, where 30$ represents the resistance line, then the target price is equal to the price at which the trader has bought the stock (31$ for example) plus the maximum triangle range, which is equal to 10$ (30$ - 20$). The Profit target limit is equal to 41$
