How to trade ascending channel pattern

How to Trade Rising Channel Pattern

How to trade the rising channel pattern is a strategy a good trader learns with intent.

These ascending channel patterns are everywhere! And by that, I mean on crypto, forex, & stock charts.

If you find that hard to believe, pull up a Bitcoin, Ethereum, or Binance coin chart from any timeframe of your choice.

Do you notice what price is fond of doing?

And why it does not reach the horizontal support or resistance before reversing?

You’re smart if you noted these and more. It’s why trading trend channels is a subject you need to master.

It’ll ensure you trade the upward channel like a pro irrespective of whether the market is bullish or bearish.

Now If I’ve won you over with that intro, walk with me as I show you how to trade the rising channel pattern.

Believe me, it’s just as good as using price channel indicators such as Bollinger bands.

What is a Rising Channel Pattern?

A rising channel pattern is a formation of higher highs and higher lows. As such, this formation points upwards.

Now, what makes it a channel is the equal distance between swing highs and lows in the range.

This means the highs and lows are parallel to each other.

An ascending channel pattern has a trendline at the bottom and a channel line at the top.

A breach of the trendline means a reversal from a short, medium, or long-term trend (depending on the timeframe you spot the pattern).

Alternatively, a break above the channel line hints the market is gaining bullish momentum. And that could lead to higher prices.

So, your take-home from this section is:

  • A rising channel ascends.
  • The channel has higher highs and higher lows.
  • Price within this pattern consolidates on low volume but breaks out on high volume.

Is Ascending Channel Bullish or Bearish

A rising or ascending channel pattern is a bullish formation with bearish implications.

Aren’t you amused at how these patterns play out in the opposite direction?

I sure am!

Buyers will get tired at some point and their exhaustion gives the sellers more strength.

Therefore, the expected breakout direction of a rising channel is downwards.

And that also answers your question of ‘is ascending channel going up or down.’

Now envision with me what leads to this formation.

A trend begins.

It’s one where buyers mindlessly pay more for the same cryptocurrency. Whereas sellers are unwilling to give out the digital asset for less.

Everyone is happy.

In short, bulls seize every buying opportunity to enter new positions or add to existing ones.

Meanwhile, current holders even though they’re selling, are less willing to part with their asset.

But pro traders know not to be carried away because everything’s gonna come crashing at some point.

So while they’re dancing in the rain with everyone, they keep an eye out for certain clues.

These are clues that the party will soon be over thanks to the overbought nature of the market.

Thus, they’re either taking profit as a parting gift or preparing to take a short.

Now let’s not make this about parties. Do you get the logic behind the rising channel pattern?

How to Trade the Rising Channel Pattern

Here are tips on how to trade the rising channel pattern.

  • Check the trend.
  • Map out your channel.
  • Choose a trading strategy.
  • Manage risks.

What does each of these entail? Read on and you’ll soon find out!

1. Check the Trend:

A rising channel pattern is mostly formed in uptrends but you’ll find it occasionally in downtrends.

This means it might be more rewarding to find these patterns in uptrends. They’ll often form the larger part of the move, especially on higher timeframes like WK1, D1, or H4.

Therefore, open a Bitcoin or Ethereum chart and identify the trend.

It’s an uptrend if there are a series of higher highs, higher lows, and higher closes.

A downtrend has lower highs, lower lows, and lower closes.

While a sideways trend has the same highs and lows.

With that in mind, keep a close watch on the price action.

Ask yourself:

  • Are recent peaks and troughs overtaking previous ones?
  • Or are both of these below the preceding highs and lows?

If that gets confusing use a trendline to determine the market’s direction.

The Bitcoin/USDT 12-hour chart below shows how price is making higher highs and lows.

Hence, this is an uptrend.

Green arrows highlight the rising highs while red arrows show the ascending lows.

Higher highs and higher lows

The resulting chart would look like this once the channel has been drawn.

Higher highs and higher lows

Proceed to tip two once you know the trend on your chosen timeframe.

2. Map Out Your Channel:

A rising channel can be drawn using a trendline or parallel channel tool.

I tend to use the tool since it gives cleaner lines and an equal width. You too can do the same.

So, what’s required?

  • Check if price has made at least two diagonal lows and highs. This confirms that the pattern is a channel.
  • Draw a trendline on the lows of price. These are apparent horizontal levels. If the levels aren’t obvious after looking at your chart for three seconds, then don’t force it.
  • Draw a channel line on the highs of price. As with the mapped-out trend line, don’t force levels into the channel.

Study the Bitcoin/USDT 3-hour chart below for a better understanding of how to spot early signs an ascending channel is forming.

How to know a rising channel pattern is forming

Now the trendline acts as support while the channel line acts as resistance.

Here’s a Bitcoin/USDT 12-chart. You’ll notice that the trendline could only map three lows. And that’s completely fine.

There’s also the middle band, which could act as temporary support and resistance to price.

How do you trade each of these channel elements?

The section below covers that.

3. Choose a Trading Strategy:

As a channel pattern trader, you can opt for one of three trading strategies.

If you’re feeling very confident, all three methods are up for the taking. But note that their level of risk range from low to high.

Strategy 1: Long at Support

The involves buying (longing) at support and selling (taking profit) at resistance.

However, you have to wait for price to create bullish candles at support before making an entry.

Some of these candles are the hammer, inverted hammer, and dragonfly doji.

There can also be a bullish engulfing, piercing pattern, and morning star at this support.

These patterns indicate selling pressure is waning. So pay attention to their size and color.

The candles may also form a W (double bottom) or U (rounding bottom) shape at support.

Once you’ve bought or longed, your target is the next resistance outlined by the channel line.

Strategy 2: Short at Resistance

This rising channel trading strategy involves shorting at resistance and taking profit at support.

It is riskier to trade this way since you’re going against the trend.

But if you’re all about milking the channel of every drop of profit it holds, you may want to consider this strategy.

How do you proceed?

  • Ensure price is at the channel’s resistance.
  • Look out for bearish candles such as shooting star, hanging man, bearish harami, etc. Indecision candles like long legged doji and spinning tops would also prove useful.
  • Check if price is making lower closes at the level.
  • Take your short after confirming all of these are in place.

Strategy 3: Trade the Breakout

Trading the channel means you’ll either be scalping or swing trading which takes a lot of time.

You’ll also be scalping from one swing to the other, which requires fast thinking.

But if you have less free time on your hands and would want to reduce your risk to the bare minimum, this strategy is ideal.

It involves waiting for price to breach the trendline or channel line before making an entry.

You’ll short if price breaks below the trendline and long if price breaks above it.

But be wary of fake breakouts.

On that note, wait for retests of breached levels since price might continue in the breakout direction if the level holds.

So don’t be the first in the market once there’s a break. Look at what the first three candles are doing.

Now that could mean missing good entries or the trade entirely.

But the level of risk you can handle is left for you to define.

Here’s a Bitcoin/USDT 12-hour chart. It shows regions to long (buy) and take profit within the channel.

The resistance levels to short have also been indicated.

What do you also notice?

The middle band is a region where you can take partial profits or raise your stop.

A candle’s close below or above the middle band confirms price has a good chance of continuing in that direction.

The next section will show you how to manage your trades accordingly.

4. Manage Risks:

Whether you choose to long, short, or trade the breakout, it’s important to manage risks.

A long or buy order requires you place a stop loss slightly below support.

A short requires a stop placed at a small distance away from the resistance level.

Notice that you’re not to place your stop loss exactly at these key levels.

That’s because your trades may be closed too often even before your analysis has a chance to play out.

You can also ensure the value you use for your stop loss is not a round number.

If the level you would’ve used is 30.50, opt for random figures like 30.44.

Why’s that?

Whole numbers are the most targeted for stop hunts since most people are inclined to use these numbers.

Rising Channel Pattern Breakout Target

The rising channel pattern breakout target can be determined in the following ways:

  • Check the length of the channel.
  • Transpose the length below the trendline.

Here’s what each entails.

1. Check the Length of the Channel:

A rising channel has a length. And that is the distance price has covered since it was constricted in the channel before a breakout.

Therefore, use a trendline or arrow to measure this length.

2. Transpose the Length Below the Trendline:

You have the length, now what?

Place it below the channel’s trendline to determine the future price target.

The transposed length hints at the minimum distance price will cover outside the channel.

This will ensure you don’t exit your trades too early.

Here’s an example with a BNB/USDT 6-hour chart. The chart shows how price broke from an uptrend and covered the same length it surged upwards.

What’s really important to note is the short-term support and resistance levels that could’ve posed great obstruction to further price movement.

For this reason, you need to adjust your stop to protect open profits as price advances to target..

Rising channel breakout target

I’d hinted there are times when the price target may not be hit.

The move towards the target might be 25%, 50%, or 75% complete before another move in the opposite direction.

This happens when the rising channel is an impulse move instead of a corrective move.

Rising Channel Pattern Examples

Here are some examples of the rising channel pattern

Example 1: Patterns in a Rising Channel

The BNB/USDT 8-hour chart below shows how other patterns can be embedded in a channel.

The patterns in this example include the head & shoulders and double top.

Price’s failure to reach the channel’s top led to a lower high creation.

There’s a neckline for both the head & shoulders and double top pattern.

Here, you would’ve spotted a breakout is about to occur thanks to these patterns.

This is a Bitcoin/USDT 8-Hour chart showing a rising wedge pattern within a rising channel.

A breach of the wedge’s trendline led to price’s fall into the lower band of the channel.

That hinted bullish momentum is slowing down.

Now if you trade the channel’s break, you could hold the trade from $48,000 to $30,000. That’s because this take-profit price completes the length of the rising channel.

Example 2: Short Entries on Breakouts

This is a Bitcoin/USDT 12-hour chart. Price breached the trendline and retested it without going back into trend.

As such, this is a failed retest and your cue to go short.

There’s the evening star pattern also giving a bearish signal to take the trade. The large red candle’s breach below the level is where your entry could’ve been made.

Also, a stop loss can be placed at the previous high. This ensures you’re not stopped out of your trades easily.

The only way your trades will be closed is if price’s trend is changing. And that is when a higher high is created.

It’s interesting to note that a short from $38,000 to $32,000 would’ve helped you amass serious profit.

Example 3: Rising Channels in a Falling Channel

The Bitcoin/USDT 30-minute chart below shows how rising channel (which could be likened to bear flags) can act as corrective moves in a trend.

The major trend here is a downtrend. Although the channels look short, there’s a lot of price action within them if you move to a lower timeframe. That would be one such as M15 or M5.

Example 4: Rising Channel from a Descending Channel

Patterns change all the time. That’s why we can have a breakout from a rising channel into a descending channel.

The Bitcoin/USDT chart below shows how a rising channel can be formed from a descending channel.

This pattern might act as a corrective move, thereby leading to further declines.

It’s also possible price may break out of the channel to the $31,000 zone.

But what did price choose to do instead?

Check the next image! The rising channel did serve as a corrective move.

The chart below shows a breakout below the same support.

What’s interesting to note is that both patterns outlined above are part of a major channel.

Breakout of falling channel into rising channel

Frequently Asked Questions

1. What are the Three Main Types of Channel Patterns?

The three major channel patterns are the rising channel, falling channel, and sideways channel.

This review is all about the ascending channel. The descending channel pattern has been covered in another guide.

But generally, a descending channel has a falling price pattern. Whereas a sideways channel has a horizontal pattern.

2. Can a Rising Channel be Bullish?

Yes, a rising channel can have a bullish breakout.

And that’s if price breaks above resistance. It’s, however, important to note that this channel has a higher chance of breaking downwards than upwards.

So if you do see an upward breach of the line, it means increasing buying pressure.

Price may keep surging after the break or fall back into trend after some candles. The latter happens if the channel line fails to hold upon restest.

3. How Do I Create a Trade in Channel Pattern?

A trade in a channel pattern is carried out by speculating from one end of the channel to the other.

If it’s a bullish channel, you’ll be looking to buy at support to sell at resistance. Longs and shorts at these levels could also work well.

The opposite is the case in a bearish channel. It’s more ideal to short at the channel’s highs and take profit at its lows.

A horizontal channel can be traded in both directions since price does not have a trend.

4. How Do You Prevent Fake Breakouts?

Fake breakouts cannot really be prevented since no one has control over what the market does.

However, you can know if Bitcoin, Ethereum, Solana, etc. is about to create a false break.

The first clue is when the breakout is not accompanied by high volume.

This is because volume tends to drop the longer price consolidates in a region.

And the expectation is for volume to kick off once barriers to price are breached.

Another way to avoid losses due to false breakouts is by being patient. Allow price to create three or more candles outside the range before taking a trade.

5. Differences Between a Rising Channel, Rising Wedge, and Bear Flag

The difference between a rising channel, a rising wedge, and a bear flag is their shape.

A rising channel has parallel lines showing an equal distance between high and low prices.

A rising wedge, on the other hand, has a support line that is steeper than its resistance line.

This shows buyers’ willingness to buy at higher prices but sellers’ less enthusiasm to sell at higher prices.

A bear flag has the same form as an ascending channel but this formation is shorter.

That’s because price spends less time consolidating within the flag than it does in a channel.

As such, the breakout could happen sooner than later.

What these three patterns have in common is their direction of break.

They all have a high chance of breaking downwards.

Final Words

Having studied this guide on how to trade the rising channel pattern, you’ll agree it’s important to master this trading strategy.

The chart pattern is an easy one to spot and as such, beginners and advanced traders can trade with it.

You only have to choose a strategy that’ll make you more profit than losses. And these strategies have been well detailed above.

The next step is to test out each strategy using a demo account. TradingView offers paper trading on both its mobile and web version.

Write down the outcome of your trades to see which one yielded the most profit with fewer losses.

And remember consistency is key. It’s not enough for the strategy to make the most money. It has to do so more often than not.

Go for it!

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