Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.
As traders, we use technical analysis as a reliable method for speculating on future price direction of both equities (shares) and indexes. Technical Anyalysis in simple terms is the study of historic price movements in a chart in search of patterns or consistantly traded support and resistance levels. Today we are looking at a specific chart pattern that falls under continuation patterns, the Ascending Triangle.
Appearance: An Ascending Triangle pattern is comprised of:
- An up-trending stock that has higher peaks and troughs.
- A resistance level where the stock is channelling towards.
- Both trend lines create a triangle forming in the top right of your chart.
Important Note: Be aware, this pattern will not be confirmed until the share price breaks through the resistance level and continues the uptrend.
Example: Rio Tinto Limited (RIO)
RIO has been in a strong uptrend for a long time now, with the price of Iron Ore recently pushing through the $100/US a tonne. This strong rally in iron ore prices – partially due to the closure of a Vale.S.A mine – has then managed to keep RIO finding resistance around $107AU in the short term. This test of resistance and then a fall has now created an ascending triangle for Rio, with the bottom of the triangle coming at the start of June – see below. Today’s test of resistance once again highlights the resistance level is valid, since iron ore is currently sitting strong at $123/US a tonne. With the share price now getting squeezed right into the corner of the triangle, we will likely see a breakout soon. The long-term uptrend would likely see the share price rally further, but it will have to break the resistance level to be confirmed, and that will involve iron ore prices to continuing to remain strong.