AUD USD: Ascending Triangle Chart Pattern

There is an ascending triangle chart pattern on the AUD USD daily chart, which is very near resistance.

Source:  ForexYard on MT4

I have shown two potential drawings for the ascending triangle chart pattern, marked by the red lines. I prefer the smaller pattern which is highlighted by the blue box. Here is a potential entry, stop and profit target. Then I will go over things I like and don’t like about the pattern.

Entry, Stop, Profit Target for ascending triangle chart pattern

If trading for an upside breakout, the breakout will occur at 1.0390 (entry). This level has not been touched since early November, and given the close proximity to 1.04 a pop could occur on that alone if we get to 1.0390.

Stop near 1.0118 (trendline) or alternatively below the recent low at 1.0143. I prefer the trendline stop. Therefore risk is: 1.0390 – 1.0118 = 0.0272 (272 pips)

Profit target is: 1.0385 – 0.9662 (this is the high which has been tested multiple times minus the low where the pattern begins) = 0.0723 + 1.0390 (breakout price) =  1.1113 (profit target).

If we get a breakout soon, the potential reward is about 2.65X the risk. Decent, not fantastic. That said, after the breakout occurs stops can always be pulled in.

Keep in mind that just because we are currently near resistance, a downside breakout could also occur. In that case, everything is reversed. Our stop from above becomes the entry (1.0118), and our entry from above becomes the stop (1.0390). Profit target is the entry price minus 723 pips (0.9395).

Other Factors

I like the ATR reading–it is very low. I have highlighted it for a reason. Volatility could remain low for some time, but eventually it will pick up. A breakout of a chart pattern may be what causes it (either up or down).

A breakout higher is not without resistance overhead. 1.07 has been batting down the price since August. Therefore, if a breakout higher does occur from the triangle watch this area closely. If the rate can break through that resistance area, the profit target is a good possibility. If it can’t get through there, well, then move the stop to at least break-even.

A downside breakout will also need to get through some support, namely at 0.9950 and 0.9650.

With each passing day our risk becomes a bit smaller as the price action (triangle) continues to converge.  The upside breakout price will not change, as the line is horizontal. The downside breakout price will move up (upside stop moves up) slightly each day as the line is sloping.

Cheers,

Cory Mitchell, CMT

Disclaimer: This is not a recommendation to buy to sell. Trading involves substantial risk, and is not suitable for everyone. Consult your own financial adviser before trading or investing. See Legal Disclaimer.