Ascending Channel – Rising Channel

Ascending channel patterns or rising channels are short-term bullish in that a stock moves higher within an ascending channel, but these patterns often form within longer-term downtrends as continuation patterns.  The ascending channel pattern is often followed by lower prices, but only after a downside penetration of the lower trend line.  The stock will continue channeling upward until it is able to break either the upper or lower trend line.  An upside break is bullish, while a downside break is bearish.

Context:  Often found within a downtrend, but a close look reveals a minor uptrend.

Appearance:  This is a channeling stock with an upward tilt.  The stock’s price action is controlled by two parallel trend lines.  Below the stock is the primary ascending trend line which connects consecutive higher lows.  Above the stock is a secondary trend line, which also is ascending as it connects consecutive higher highs.  Price follows the path of least resistance in an ascending channel, which is up.  Upon reaching the lower trend line, the stock bounces until it reaches the upper trend line, which acts as resistance as well as a profit-taking zone.  Trading an ascending channel in the most effective way is through buying dips to the lower trend line for short-term bounce plays, or by waiting for a downside breakout to occur before short selling.

Breakout Expectation:  Channeling stocks within ascending channels are only able to reverse course with a downside penetration of the primary ascending trend line.  The intensity of this breakout, the duration of the channel, and the width of the channel will determine how far a breakout may carry.  An upside breakout from an ascending channel indicates a higher intensity of buying, and is a technical buy signal.  A downside breakout from an ascending channel indicates lower prices to come, and is a technical sell signal.

This stock formed a rising channel or ascending channel marked by two parallel uptrend lines.  Stocks will continue to channel until either trend line is broken.  An upside break is a signal that buying intensity has increased, while a downside break indicates an end to the short-term uptrend.

Members of our stock pick service see us pointing out ascending channel patterns regularly.  Come trade with us!

Be sure to learn about other channeling stock patterns such as the descending channel and the rectangle pattern.