STOCK
TRADING
PATTERNS
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KEY TERMS
Resistance Line
Support Line
Bullish
Bearish
Stop-Loss
1.
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LONG TRADE
1. Ascending Triangle
An ascending triangle is a bullish continuation pattern that forms during an uptrend. It is characterized by a
horizontal resistance line at the top and an upward-sloping trendline at the bottom. The price movement within the
triangle narrows over time as it approaches the apex of the pattern.
Key Characteristics:
Horizontal Resistance Line: The upper boundary where the price has trouble breaking above.
Rising Support Line: The lower boundary that represents increasing buying pressure, forming higher
lows.
Volume: Typically, volume decreases as the pattern forms and then increases significantly upon a
breakout.
What to Expect:
1. Bullish Signal: The ascending triangle is generally considered a bullish pattern, indicating that the price
is likely to break out above the resistance level.
2. Breakout Confirmation: Traders look for a breakout above the horizontal resistance line on increased
volume as confirmation of the pattern. This breakout suggests the continuation of the uptrend.
3. Price Target: The expected price target after the breakout can be estimated by measuring the height of
the triangle (the vertical distance between the initial high and the low) and adding it to the breakout point.
Trading Strategy:
1. Entry Point: Traders often enter a long position when the price breaks above the resistance line with
increased volume.
2. Stop-Loss: A stop-loss order can be placed below the most recent low within the triangle or just below
the upward-sloping trendline to manage risk.
3. Profit Target: The profit target is typically set by adding the height of the triangle to the breakout point.
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2. Symmetrical Triangle
A symmetrical triangle is a chart pattern characterized by two converging trendlines. One trendline slopes
downward, connecting lower highs, while the other trendline slopes upward, connecting higher lows. This pattern
represents a period of consolidation before the price breaks out in either direction.
Key Characteristics:
Converging Trendlines: The upper trendline slopes downward, and the lower trendline slopes upward,
forming a symmetrical shape.
Decreasing Volume: Typically, volume decreases as the pattern develops, indicating a temporary
balance between buyers and sellers.
Neutral Bias: The symmetrical triangle does not have a specific directional bias. It can break out either
upward or downward.
What to Expect:
1. Indecision and Consolidation: The symmetrical triangle represents a period of market indecision and
consolidation, where neither buyers nor sellers are in control.
2. Potential Breakout: The price can break out in either direction. Traders watch for a decisive move above
the upper trendline (bullish breakout) or below the lower trendline (bearish breakout).
3. Volume Surge: A breakout is usually accompanied by a surge in volume, confirming the direction of the
move.
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Trading Strategy:
1. Wait for the Breakout: Instead of anticipating the direction, wait for the price to break out of the triangle
before entering a trade.
2. Entry Point: Enter a long position if the price breaks above the upper trendline on increased volume.
Enter a short position if the price breaks below the lower trendline on increased volume.
3. Stop-Loss: Place a stop-loss order below the most recent low within the triangle for a long trade or above
the most recent high within the triangle for a short trade.
4. Profit Target: The profit target can be estimated by measuring the height of the triangle (the vertical
distance between the initial high and the low) and adding it to the breakout point for an upward breakout
or subtracting it from the breakout point for a downward breakout.
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