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TRADING STOCKS TACTICS - CHART PATTERNS |
Continuation Chart Patterns
Trading stocks education - Trading tactics & examples
Descending Triangle Continuation
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Descending Triangle is a decline to a new low on news followed by a kick back rally to an intermediate resistance level, a second decline to test the recent low followed by a second rally toward but not through intermediate resistance and finally a decline to fresh new lows on strong volume.
The technical target for a descending triangle is derived by measuring the vertical height of the triangle and applying this length to the new breakout level.
The descending triangle is a bearish formation that usually forms during a downtrend as a continuation pattern. There are instances when descending triangles form as reversal patterns at the end of an uptrend, but they are typically continuation patterns. Regardless of where they form, descending triangles are bearish patterns that indicate distribution.
For the descending triangle, the horizontal line represents demand that prevents the security from declining past a certain level. It is as if a large buy order has been placed at this level and it is taking a number of weeks or months to execute, thus preventing the price from declining further. Even though the price does not decline past this level, the reaction highs continue to decline. It is these lower highs that indicate increased selling pressure and give the descending triangle its bearish bias.
Descending Triangle
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Because of its shape, the pattern can also be referred to as a right-angle triangle.
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Lower Horizontal Line: At least 2 reaction lows are required to form the lower horizontal line. The lows do not have to be exact, but should be within reasonable proximity of each other. There should be some distance separating the lows and a reaction high between them.
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Upper Descending Trend line: At least two reaction highs are required to form the upper descending trend line. These reaction highs should be successively lower and there should be some distance between the highs.
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Duration: The length of the pattern can range from a few weeks to many months, with the average pattern lasting from 1-3 months.
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Volume: Confirmation is preferred but it is not always necessary. As the pattern develops, volume usually contracts. When the downside break occurs, there would ideally be an expansion of volume for confirmation.
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Return to Breakout: Sometimes there will be a return to breakout level (now newfound resistance) before the down move begins in earnest.
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Target: Once the breakout has occurred, the price projection is found by measuring the widest distance of the pattern and subtracting it from the resistance breakout.
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