In technical analysis, trends are determined using trendlines, which are slopes that give a clear direction of the market trend. An ascending channel pattern forms when the price action between two ascending slopes shows a movement characterized by higher highs and higher lows. An ascending channel is also called a rising channel or a channel up. Depending on the price action, you can find ascending channel bullish or bearish patterns in the chart.
A descending channel is the opposite, having lower highs and lower lows price action within two slopes showing a bearish trend. The two slows bordering the price action act as support and resistance lines, and the price must touch either at least two times to confirm the ascending or descending channel pattern.
Why Trade Ascending Channels?
An ascending bullish channel pattern impacts the market in many important ways and is useful for technical analysts to identify potential price continuations or reversals within the trend. Because the price is dynamic and often doesn’t stay within the support and resistance lines, analysts must find the breakout prices where the price may break above or below. A breakout above the resistance line may indicate a possible price continuation, while a breakout below the support line indicates a possible price reversal.
Ascending stock channel patterns, for example, show the time the stock’s price has been in that direction and is an important pointer for the trader to gauge the strength of the price action and determine how long before profits come. Ascending channels help traders make better and smart decisions to improve their trading outcomes.
How to Trade Ascending Channels
There are different strategies to trade ascending channels, but they all require analysis, speed, and trading management. Some of these strategies are:
Range trading describes opening and closing positions within the support and resistance lines, going from one swing to another within the price range. In range trading, traders buy or go long when the price hits the support line, and sell or go short when it hits the resistance line.
The idea is to catch price movement from one end to the other, doing it severally while the ascending channel price action lasts. In that way, traders secure profit guided by the upper and lower price limits.
When range trading ascending channels, place TP and SL just before the resistance and support lines respectively. This secures your profit if the price moves differently.
An ascending channel breakout or bullish channel pattern indicates the continuation of the strong bullish trend, and is an important factor to consider when trading breakouts.
Bullish breakouts occur at the middle or end of a trend, and in the case of the ascending channel, shows that the price momentum is still strong in the upward direction.
To trade breakouts, wait for the price to hit the resistance line and break the line. Wait for a retest to confirm the price action. If the price doesn't break the resistance line at the retest, the breakout is probably fake and will correct itself. A slight correction may also lead to a full breakout after two or three retests.
You can allow your precious Long entry to go on, or you can enter a new Long just after the retest and wait for the price to go up.
Set your TP at a higher price, and your SL just below the breakout candlestick. Use volume indicators to determine strength and momentum of the breakout.
Breakdowns indicate the start of a descending channel bullish or bearish trend, and are great for finding good entry points in a bearish trend.
Just like breakouts, traders must first wait for a breakdown from the support line, and two or three price retests to confirm the breakdown move. If the move is confirmed, the sell trade is opened just after the breakdown price and TP set for a higher price. The SL should be placed above or below the breakdown candlestick.
The ascending channel chart is widely used by traders across financial markets and is effective for finding profitable trading opportunities especially in crypto trading.