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High-Probability Trade Setups: A Chartist's Guide to Real-Time Trading by Tim Knight

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Chapter 3

Ascending Triangles

When a security is ascending in price, forming a series of higher lows (the ascending trendline) and identical highs (the horizontal line above it), and it is already in a general uptrend, it is forming an ascending triangle pattern. This pattern is a continuation pattern—that is, this pattern is a bullish pattern when formed in the context of a trend that is already bullish.

DEFINITION OF THE PATTERN

The pattern has several criteria, and symbol TDG shown in Figure 3.1 provides a good example. First, you should have an ascending trendline acting as support; second, you should have a horizontal line representing the overhead supply of the stock that is slowly being eaten away by new buyers; and third, you should have a breakout above the horizontal line.

Volume can play a role too, although it isn't shown in this example. Volume typically dries up as these patterns progress, because traders are losing interest in the security since it evidently isn't breaking out but is merely in the slow process of accumulation. If and when a breakout occurs, then volume should spike higher, evidence of the fact that the overhead supply (formerly at the horizontal line) has been dispensed with, and a hoard of new buyers (or reenergized former buyers) are sweeping in to purchase the security.

The chart in Figure 3.1 climbs a hearty 62 percent after its breakout before it has any meaningful retracement. If you want to establish an estimated target for a stock that has ...

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