Guidelines of Descending Triangles

Guidelines of Descending Triangles A triangular-shaped pattern bounded by two trend lines, the bottom one horizontal and the top one sloping down, that intersect at the triangle apex Horizontal support A horizontal (or nearly so) base acts to support prices. Prices line should touch the base at least twice (at least two minor low that either touch or come close to the trend line).

Down-sloping top A down-sloping price trend that eventually intersects the horizontal base line at the apex. Prices should rise up and touch (or come close to) the sloping trend line at least twice, forming two distinct minor highs.

Breakouts Usually occur on very high volume that diminishes over time. However, prices can also break out on low volume. Price action after breakout Prices usually move down quickly, reaching the ultimate low in a straight-line fashion. Pullbacks occur about half of the time.

price target Calculate the height of the formation by subtracting the highest high from the lowest low. Subtract the height from the value of the lower trend line to get the predicted minimum price decline. Alternatively, draw a line parallel to the down-sloping trend line starting at the lower left corner of the formation. The value of this line where prices break out of the formation becomes the target price. For upward breakouts, add the height to the price where it pierces the top trend line. Best forex trading signals Since the breakout direction is unknown, always wait for the break out to occur. After a downward breakout, sell short immediately or after prices pull back to the triangle base and start moving down again. Another way to play the formation is to wait for an upward breakout then buy the pair .

KEY POINT: A descending triangle is a wedgeshaped chart pattern that breaks out downward most often. It can act as a reversal or continuation of the price trend.

SMART INVESTOR TIP If price touches the bottom trendline only twice, it should touch the down-sloping trendline at least three times. This is not a requirement, but fi ve touches for many chart patterns works well to help avoid selecting boneheaded ones.

SMART INVESTOR TIP Avoid excessive white space between the two trendlines when selecting descending triangles. Price should cross the triangle plenty of times to fi ll the area.

KEY POINT: A descending triangle forms when buyers acquire the pair at a fi xed price, forming a line of support. Others sell when the stock becomes overpriced.

SMART INVESTOR TIP It is helpful to look at a price chart without any trendlines connecting the pattern boundaries to make sure that what you are seeing is really a chart pattern. Can you draw each trendline a different way, by connecting other nearby peaks or valleys? Will others see the same pattern as you? If there are doubts, then skip the pattern and look for another one.