Psychology behind Ascending and Descending Triangles Pattern
Updated
Just as with ascending triangles, most of the times, the price will break the horizontal support line, and continue with the move lower.
there is usually psychology behind every chart pattern; and ascending and descending triangles are no exception.
Follow me closely as we will now ‘investigate’ the PSYCHOLOGY behind ascending triangles:
To make the analysis easier, let’s think of the ascending triangle pattern as a visualization of an ongoing battle between the bulls (#buyers) and the bears (#sellers).
The bulls keep pushing the stock up in price until they get overpowered by the bears/sellers at the horizontal resistance level.
It is at that resistance level that bears/sellers attempt to push the price down.
Though sellers are somehow successful in pushing the price down, they are however unable to push the price to the previous low levels, as bulls/buyers are persistent, and the price sets a higher low (bottom trend line).
This pattern continues until the price action becomes confined to the vertex of the triangle, representing a pivotal moment in this battle. At this point, either the bears will win, and the stock will break the bottom trend line, or the bulls will win and break the horizontal resistance line.
If history is anything to go by, this pattern favors the bulls, and if the horizontal resistance line is broken, the bulls will be able to push the price up, triggering a breakout.
This same psychology also applies to descending triangles, but in reverse.
Now let’s looks at how we can to make money from this chart pattern:
1. Wait for the Breakout –we should wait price to break above the horizontal resistance line before placing a trade.
2. Lookout for Volume – High volume usually represents conviction behind a move, indicating that a large number of traders want a position in the stock. While above average volume is not necessary for an ascending triangle pattern breakout, it may increase the likelihood of a stronger move.
3. Look for Confirmation – If an ascending triangle breakout is genuine, the flat line resistance level should become a support level. If the stock starts to pullback after the breakout, you should look for the previous resistance level to hold as support. This will help confirm the legitimacy of the breakout. It also allows traders who missed the initial move to take a position
4. Have an Exit Plan – All trades require an exit plan for both favorable and unfavorable outcomes.
For ascending triangles, Stop loss should typically be placed just below the previous horizontal resistance (which will now be acting as support).
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there is usually psychology behind every chart pattern; and ascending and descending triangles are no exception.
Follow me closely as we will now ‘investigate’ the PSYCHOLOGY behind ascending triangles:
To make the analysis easier, let’s think of the ascending triangle pattern as a visualization of an ongoing battle between the bulls (#buyers) and the bears (#sellers).
The bulls keep pushing the stock up in price until they get overpowered by the bears/sellers at the horizontal resistance level.
It is at that resistance level that bears/sellers attempt to push the price down.
Though sellers are somehow successful in pushing the price down, they are however unable to push the price to the previous low levels, as bulls/buyers are persistent, and the price sets a higher low (bottom trend line).
This pattern continues until the price action becomes confined to the vertex of the triangle, representing a pivotal moment in this battle. At this point, either the bears will win, and the stock will break the bottom trend line, or the bulls will win and break the horizontal resistance line.
If history is anything to go by, this pattern favors the bulls, and if the horizontal resistance line is broken, the bulls will be able to push the price up, triggering a breakout.
This same psychology also applies to descending triangles, but in reverse.
Now let’s looks at how we can to make money from this chart pattern:
1. Wait for the Breakout –we should wait price to break above the horizontal resistance line before placing a trade.
2. Lookout for Volume – High volume usually represents conviction behind a move, indicating that a large number of traders want a position in the stock. While above average volume is not necessary for an ascending triangle pattern breakout, it may increase the likelihood of a stronger move.
3. Look for Confirmation – If an ascending triangle breakout is genuine, the flat line resistance level should become a support level. If the stock starts to pullback after the breakout, you should look for the previous resistance level to hold as support. This will help confirm the legitimacy of the breakout. It also allows traders who missed the initial move to take a position
4. Have an Exit Plan – All trades require an exit plan for both favorable and unfavorable outcomes.
For ascending triangles, Stop loss should typically be placed just below the previous horizontal resistance (which will now be acting as support).
Thanks for Your Likes & Support & Subscribe....
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