The ascending channel pattern is a chart pattern that signifies bullishness. It is formed during an uptrend when a trendline used to connect lows is parallel to a trendline that connects highs.
Furthermore, the ascending channel is always referred to as a channel up as it pushes the price upwards.
Trendlines are an easy tool drawn either above highs or below lows in order to get a grasp of the current market’s climate. Also, trendlines can be used to predict the future direction of currency pairs too.
A guiding principle in technical analysis is trading trends. The trendline eases the identification of trends market trends.
Furthermore, it is difficult to time when a trend will come to an end. A break of a trendline signifies a breakout thereby nullifying the present trend.
Most traders are only familiar with sideways ranges. A channel is a unique type of trading range that arises when two trendlines connecting the highs and the lows of a trend respectively are parallel to one another.
There are mainly two types of channels; the ascending channel and the descending channel. The ascending channel will be discussed in this piece.
In an ascending channel, price respects both trendlines and steadily climbs up. Conversely, in a descending channel, price uses the trendline as a boundary and falls slowly.
The Ascending Channel Pattern
The ascending channel is similar to a rectangular channel. The only difference is it’s slightly slanted upwards.
When the price is in an ascending channel, it is enclosed in a trading range. The trendlines act as the boundary of the trading range.
The upper trendline acts as a diagonal resistance while the lower trendline act as diagonal support.
Ideally, the price should bounce/ reverse when it gets to the upper or lower resistance. Price will keep respecting these boundaries and gradually climb up.
Also read: How To Trade The Triple Bottom Pattern
How To Trade The Ascending Channel
Support and Resistance
One way to trade an ascending channel, traders are required to wait for the price to either reach the diagonal resistance or support.
When the price is upper trendline (resistance), a sell order is placed. On the other hand, when the price falls to the lower trendline (support), a buy order is opened.
Additionally, since the market’s overall trend is bullish in this channel, the buy orders are low risk compared to shorts.
This is because it is an ascending channel pattern, the price would easily push upwards compared to the retrace.
However, momentum has to be watched closely here. If the price starts struggling to reach either of the trendlines, it shows that momentum is reducing and this channel might be invalidated soon.
Ascending Channel Breakout
The ascending channel can also be traded even after the price breaks out of the channel. Eventually, trendlines are broken, when this happens, retests can be expected.
On an occasion that a downward breakout happens, a sell order can be placed on a retest of the trendline. An upward break out of the channel can also occur although the bullish trend stays intact and bias is not affected.
The ascending channel is bullish on a short-term basis. Although, long term it can either end up bullish or bearish. When the price is in an ascending channel, it travels upwards gradually and higher prices are attained. It stays this way until the upper or lower trendlines are broken.
If the upper trendline is broken a bullish breakout will follow. On the contrary, if the lower trendline breaks, the price continues downwards but not in the channel.
The ascending channel alters the direction of the market upwards. When the price is in this range, higher highs and higher lows are made, therefore, it is a bullish pattern. Its counterpart, the descending channel is a bearish chart pattern.
The descending channel is not bullish, rather, it is a bearish pattern. When the price is bound in this channel, it downtrends slowly while respecting both trendlines.
Summary: The Ascending Channel Pattern- Full Breakdown
Ascending channels are found at the end of a downtrend, the price is confined in this channel while respecting its boundaries. Upon completion, this chart pattern goes beyond these boundaries (trendlines).
This pattern can either be a huge pullback of a downtrend or a trend reversal. In foresight, this cannot be determined. So, it is necessary to wait for the direction of the breakout after the chart pattern is complete.