The ascending channel is also known as a “rising channel” and “channel up“.
The lower line is identified first, as running along with the lows: it defines the trend line. The upper line (the “channel line”) is identified as parallel to the trendline, running along with the highs.
When in the channel, prices are expected to bounce off both upper and lower boundaries; the more such reversals occur, the more reliable the pattern.
An ascending channel looks similar to the Rectangle pattern, but the difference is that an ascending channel slopes up.
An ascending channel is the exact opposite of the descending channel. When the price is around the bottom trendline, look for long opportunities, although aggressive traders could trade long and/or short at both trend lines looking for a bounce or pullback.
Another way to trade this pattern is to wait for the price to break through either trendline.
A break out above the upper trendline generates a strong buy signal, while a break down below the lower trendline generates a strong sell signal.
When the price breaks through the trend line (lowe line), it might indicate a significant change in trend. Breaking through the channel line (upper line), in contrast, suggests an acceleration of the existing trend.
Keep in mind that just like all the other patterns, channels might be prone to false or premature breakouts, which means that price may retreat back into the channel.
Ascending channels are useful due to their ability to predict overall changes in trends.
Ascending channels, like descending channels., are a tool for determining whether the trend in price will continue. As long as prices remain within the ascending channel, the upward trend in price can be expected to continue.
Another strategy of using an ascending channel is to identify where the price fails to reach the upper line.
The failure to reach it often signifies trend exhaustion. This could be an early warning that the trend is going to reverse. The breach of the trend line (lower line) may be more likely to happen.
Ascending channels often appear within an overall downtrend in prices and represent either a continuation of the trend or a reversal of the trend.
The direction of the break will determine whether it’s a continuation or a reversal.
Vincent Nyagaka is a Professional Trader, Analyst & Author. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Check out Vincent’s Professional Trading Course here.