Guidelines of Descending Triangles

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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 min that either touch or come close to the trend line). 

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 five 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 fill the area.

KEY POINT: A descending triangle forms when buyers acquire the pair at a fixed 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.