In an uptrend, price action finds first resistance 1, which will the horizontal resistance for the rest of the pattern formation, where it reverse direction goes downwards till finding first support 2, which will be the lowest low in the pattern.
Price action reverse direction from support 2 and goes upwards, till finding the second resistance 3, which will be -around- the same rate of the first resistance 1.
Price action reverse direction from resistance 3 and goes downwards, till finding the second support 4, which must be higher than the first support 2.
The pattern is completed when price action reverse direction from 4 and goes upwards till it breaks the triangle's upper horizontal border at point 5.
NOTES ON ASCENDING TRIANGLE
Before the breakout, 4 touches to the triangle's borders are the minimum for a valid pattern, more touches are acceptable.
The breakout of the pattern is expected at around (half / two third) the triangle formation, measured from first touch 1 to the intersection point of upper and lower borders.
The more common direction for the pattern is continuation, but that doesn't rule out the existence of reversal ascending triangles.
Volume usually decreases as the pattern is being formed, and increases when breaking or retesting the triangle's upper border 5.
This pattern is commonly found on medium and long-term time-frames.
HOW TO TRADE ASCENDING TRIANGLE
Trade entry: after breaking the triangle's upper border at point 5, either with an entry after confirming the breakout, or after a -possible- retest to the upper border's rate.
Take profit: identified by measuring the vertical distance from the first touch 1 to the second touch 2, that measurement is then applied from the breakout point 5.
Stop loss: can either be the triangle's upper border that turned into support 5, or the last touch to the pattern's lower border before the breakout 4.
ASCENDING TRIANGLE REWARD:RISK
When using the last touch before the breakout as stop loss, the pattern's R:R improves when that touch is near the end of the triangle, as well as when the lower border's up-slope is steeper.
When using the upper border's rate as stop loss, R:R will depend on the (entry rate - break rate) distance, compared to the target measurement (1 - 2) distance.
Always remember that both stop loss levels explained above are absolute, the actual stop loss rate for your trade setup should be a bit beyond those levels to give the trade setup some room to breathe, and of-course calculations for position size and R:R should be done with respect to those rates.
ASCENDING TRIANGLE REAL EXAMPLE
ASCENDING TRIANGLE FOREX TRADE SETUP
Trade entry: at the closing rate of the candle after breaking the upper border at point 5
Take profit: 220.0 pips - usual measurement applied from point 5
Stop loss 1: 86.8 pips (R:R 2.535) - set at 14% of target measurement, beyond absolute SL1
Stop loss 2: 201.8 pips (R:R 1.090) - set at 7% of target measurement, beyond absolute SL2