An ascending trend line is a chart pattern containing two or higher lows that can be connected with a straight line. It is a bullish pattern created by connecting two or more lows, with each successive low higher than the previous low.
This creates an upward-sloping trend line
An ascending trend line is also known as an “uptrend line“.
Since technical analysis is built on the assumption that prices trend, the use of trend lines is important for both identifying and confirming trends.
An ascending trend line acts as support and indicates that demand (more buyers than sellers) is increasing even as the price rises.
A rising price combined with increasing demand is very bullish and shows really strong buying pressure. As long as the price action stays above this line, it is a bullish trend.
Price can bounce as the trend line acts as support. Price usually retests a sloped trend line several times, until it breaks at which point we may have a trend reversal. The more points there are to connect, the stronger a trend line becomes.
The strength of the trend line is also determined by how many market participants recognize the trend line. If a lot of the market acknowledges the same trend line that you see, then the trend line becomes self-fulfilling.
As long as prices remain above the trend line, the uptrend is considered solid and intact.
A break below the ascending trend line indicates that buyer demand has weakened and a change in trend could be imminent.
If the price breaks through the ascending trend line, you can short the breakdown but be aware of fakeouts (false breakouts).
Trading the Ascending Channel
Support and Resistance: Traders can buy a stock when its price touches the bottom line of a rising channel and sell it when the price gets close to the top line. They should set a stop-loss order just below the bottom line to avoid big losses if the price suddenly drops. Traders using this method should make sure there’s enough space between the lines of the pattern to balance the risks and rewards. For instance, if the stop-loss is set at $5, the channel width should be at least $10 to maintain a good risk/reward ratio of 1:2.
Breakouts: Traders may consider buying a stock when its price breaks above the top line of a rising channel. It’s wise to check other indicators to confirm the breakout. For instance, traders might look for a significant increase in trading volume and make sure there’s no resistance on longer-term charts.
Breakdowns: Before selling a stock short when its price breaks below the bottom line of a rising channel, traders should watch for other signs of weakness. If the price doesn’t reach the top line often, it could be a warning sign. Traders should also watch for negative differences between a popular indicator like the relative strength index (RSI) and the price. For example, if a stock’s price keeps going up in the channel but the indicator is going down, it suggests the upward momentum is weakening.