# Ascending Channel: Definition, Trading Strategies, and Examples

## What Is an Ascending Channel?

An ascending channel is the [price action](https://www.investopedia.com/terms/p/price-action.asp) contained between upward sloping parallel lines. It is characterized by higher highs and higher lows, indicating that the price is trending upwards. Technical analysts construct an ascending channel by drawing a lower [trend line](https://www.investopedia.com/terms/t/trendline.asp) that connects the swing lows, and an upper channel line that joins the swing highs.

Technical traders can profit from ascending channels by identifying higher resistance levels and setting stop-loss orders. They can also examine other indicators to look for a potential breakout or breakdown.

The opposite of an ascending channel is the [descending channel](https://www.investopedia.com/terms/d/descendingchannel.asp).

### Key Takeaways

*   An ascending channel shows an uptrend in a security's price, framed by upward-sloping trend lines.  
    
*   Traders use ascending channels to identify breakout and reversal opportunities in market trends.  
    
*   A breakout above the channel suggests a continued upward trend, while a breakdown indicates potential reversal.  
    
*   Combining ascending channels with other technical indicators strengthens trade decisions.  
    
*   Envelope channels, like Bollinger Bands, help analyze longer-term price movements, contrasting with ascending channels.

## How Ascending Channels Work in Trading

Prices in an ascending channel may move outside the pattern's lines, showing [support and resistance](https://www.investopedia.com/trading/support-and-resistance-basics/) areas helpful for setting stop-loss orders and targets. A [breakout](https://www.investopedia.com/terms/b/breakout.asp) above an ascending channel can signal a continuation of the move higher, while a breakdown below an ascending channel can indicate a possible trend change.

Ascending channels clearly indicate an [uptrend](https://www.investopedia.com/terms/u/uptrend.asp). Traders can [swing trade](https://www.investopedia.com/terms/s/swingtrading.asp) between support and resistance or follow breakouts and breakdowns.

![Image](https://www.investopedia.com/thmb/n6Y2nd4LjwVg-lKU3GLxJ290--8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV_final_Ascending_Channel_Jan_2021-01-e24ac9e9f9d143b4845a9e7c827e555a.jpg)

*— Image by Sabrina Jiang © Investopedia 2021*

## Strategies for Trading Ascending Channels

*   **Support and Resistance**: Traders might [go long](https://www.investopedia.com/terms/l/long.asp) when a stock hits the lower trend line and sell as it approaches the upper line. A [stop-loss order](https://www.investopedia.com/terms/s/stop-lossorder.asp) should be placed slightly below the lower trend line to prevent losses if the security’s price abruptly reverses. Traders who use this strategy should ensure there is enough distance between the pattern’s parallel lines to set an adequate risk/reward ratio. If a trader places a $5 stop, the channel should be at least $10 wide for a 1:2 risk/reward ratio.
*   **Breakouts**: Traders could buy a stock when its price breaks above the upper channel line of an ascending channel. It is prudent to use other [technical indicators](https://www.investopedia.com/terms/t/technicalindicator.asp) to confirm the breakout. For example, traders could require that a significant increase in [volume](https://www.investopedia.com/terms/v/volume.asp) accompanies the breakout and that there is no overhead resistance on higher time frame charts.
*   **Breakdowns**: Before traders take a [short position](https://www.investopedia.com/terms/s/short.asp) when price breaks below the lower channel line of an ascending channel, they should look for other signs that show weakness in the pattern. Price failing to reach the upper trend line frequently is one such warning sign. Traders should also look for negative divergence between a popular indicator, such as the [relative strength index (RSI)](https://www.investopedia.com/terms/r/rsi.asp), and price. For instance, if a stock’s price is making higher highs within the ascending channel, but the indicator is making lower highs, this suggests upward momentum is waning.

## Comparing Ascending Channels With Envelope Channels

[Envelope channels](https://www.investopedia.com/terms/e/envelope-channel.asp) are another popular [channel](https://www.investopedia.com/terms/t/tradingchannel.asp) formation that can incorporate both descending and ascending channel patterns.

Traders use envelope channels to analyze price movements over long periods, while ascending and descending channels help chart prices after a [reversal](https://www.investopedia.com/terms/r/reversal.asp). Trend lines can be based on [moving averages](https://www.investopedia.com/terms/m/movingaverage.asp) or highs and lows over specified intervals.

Two of the most common envelope channels include [Bollinger Bands](https://www.investopedia.com/terms/b/bollingerbands.asp) and [Donchian Channels](https://www.investopedia.com/terms/d/donchianchannels.asp).

> **Article Sources**
>
> 1.  Thomas Bulkowski. “[Encyclopedia of Chart Patterns](https://books.google.com/books?id=_qV4G6ne3G4C&printsec=frontcover&source=gbs_atb),” Pages 114-131. John Wiley & Sons, 2021.