Although we have already looked at a Classic Pattern in the Learn Technical Analysis Free series, another important pattern to understand early on is the Ascending Continuation Triangle. This pattern is formed by two converging trendlines — a horizontal upper line that scrapes along two steady “highs” of a trading range and an increasing lower line that follows two higher lows of the same range.

The importance of the Ascending Continuation Triangle as it relates to investors who want to learn technical analysis is that it is a bullish signal. Typically, it is a short-term pattern that forms between one and three months. This allows for quick gains and also for lesser losses if the pattern was false.

For investors who are just starting to learn technical analysis, remaining patient as the pattern takes shape is often more difficult than spotting the pattern itself. To confirm the pattern, here are a few things one should look for.

Volume

This is probably the most important confirming factor when it comes to this pattern. As the pattern takes shape, volume should be diminishing. When the pattern is confirmed and there is a breakout, volume should spike. Lacking this volume spike at breakout, investors should no consider the pattern reliable and should steer away from making trade decisions based on it.

200-day Moving Average

The Moving Average should also be taken into consideration. If the pattern’s prices touch or come close to the 200-day moving average, then the pattern is considered strong.

Duration

Duration is also an important consideration. Many people who are just starting to learn technical analysis will forget this. Ideally, the break-out should occur long before the pattern reaches the right tip of the triangle. In fact, investors should expect break-out to occur roughly three-quarters to two-thirds of the way along that upper line.

As far as providing a fundamental explanation for why this pattern occurs, investors should consider a company or a institutional investor who wants to offload a large quantity of stock at a pre-determined price level. As the stock price reaches such a level, buyers will draw on the large supply and will consequently push the price down, forming something of a resistance level. However, as prices bounce back and the supply is depleted, the price will shoot through the previous resistance levels to new highs. This is exactly what we like to see when we start to learn technical analysis — the perfect end to a classic pattern.