As of 01/20/2021
  Indus: 31,188 +257.86 +0.8%  
  Trans: 13,126 +225.85 +1.8%  
  Utils: 865 +7.27 +0.8%  
  Nasdaq: 13,457 +260.07 +2.0%  
  S&P 500: 3,852 +52.94 +1.4%  
YTD
 +1.9%  
 +4.9%  
 +0.0%  
 +4.4%  
 +2.6%  
  Targets    Overview: 01/13/2021  
  Up arrow32,000 or 29,600 by 02/01/2021
  Up arrow13,500 or 12,300 by 02/01/2021
  Up arrow890 or 800 by 02/01/2021
  Up arrow13,500 or 12,400 by 02/01/2021
  Up arrow3,900 or 3,625 by 02/01/2021
CPI (updated daily): Arrows on 11/2/20
As of 01/20/2021
  Indus: 31,188 +257.86 +0.8%  
  Trans: 13,126 +225.85 +1.8%  
  Utils: 865 +7.27 +0.8%  
  Nasdaq: 13,457 +260.07 +2.0%  
  S&P 500: 3,852 +52.94 +1.4%  
YTD
 +1.9%  
 +4.9%  
 +0.0%  
 +4.4%  
 +2.6%  
  Targets    Overview: 01/13/2021  
  Up arrow32,000 or 29,600 by 02/01/2021
  Up arrow13,500 or 12,300 by 02/01/2021
  Up arrow890 or 800 by 02/01/2021
  Up arrow13,500 or 12,400 by 02/01/2021
  Up arrow3,900 or 3,625 by 02/01/2021
CPI (updated daily): Arrows on 11/2/20

Bulkowski on Busted Descending Triangles

 

Updated with new statistics 12/28/20.

Information on busted chart patterns is discussed in the third edition of my book, Encyclopedia of Chart PatternsEncyclopedia of Chart Patterns 2nd Edition book..

I show a picture of the book on the right.

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

-- Tom Bulkowski

$ $ $

Busted Descending Triangles: Summary

Price can breakout of a descending triangle in any direction. When price moves no more than 10%, reverses direction, and closes beyond the side opposite the breakout, it busts the chart pattern. For testing, I used the top and bottom of the triangle as the price where a stock busts the triangle, not a trendline break.

As one might imagine, a descending triangle with a downward breakout that busts results in a higher gain. The rise averages 40%. I'll discuss more statistics later.

Busted Descending Triangles: Single Busts

Picture of QLogic (QLGC) on the daily scale.

I show a chart of a single busted descending triangle in QLogic on the daily scale. The descending triangle is outlined with blue trendlines (which really look black on my 'puter). Price pierces the bottom trendline at A and confirms the chart pattern with an downward breakout. However, price does not drop far before it reverses. When price closes above the top of the triangle, which occurs at B (red line), it busts the downward breakout. If price continues to move higher by at least 10% above the red line, as in this case, then the chart pattern becomes a single busted descending triangle.

For a single bust, look for:

  1. Price breaks out either upward or downward from a descending triangle by closing outside of the trendline border. This occurs at A in the figure.
  2. Price must move less than 10% before reversing.
  3. For upward breakouts, price then closes below the bottom of the descending triangle. For downward breakouts, price closes above the top of the descending triangle (B).
  4. Price continues moving in the new direction by more than 10%.

For the last point, 4, if price fails to move more than 10%, then it could be forming a double busted descending triangle.

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Busted Descending Triangles: Double Busts

Picture of Colgate-Palmolive (CL) on the daily scale.

The figure to the right shows an example of a double busted descending triangle in Colgate-Palmolive (CL).

The descending triangle forms between the two blue trendlines. This one has price closing above the down-sloping trendline for an upward breakout, at A. The upward move reverses and drops to B. When price closes below the bottom of the triangle, it busts the upward breakout for the first time. Price continues dropping, but not much -- less than 10% below the bottom of the triangle.

Then price makes a straight-line run up. When it closes above the highest peak in the descending triangle, it busts the chart pattern for the second time. That happens at C. Price continues rising (not all of the rise is shown) at least 10% above the red line (which highlights the highest peak in the pattern).

For a double bust, look for these elements.

  1. Price busts a confirmed descending triangle for the first time (point B in this figure).
  2. Price must move less than 10% before reversing (the drop below B).
  3. Price reverses direction again, closing either above the top or below the bottom of the triangle, and price moves at least 10% in the new direction. That is the move from C, upward.

If price fails to move more than 10% in the new direction, then it is a triple busted descending triangle.

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Busted Descending Triangles: Triple Busts

Picture of Intel (INTC) on the daily scale.

Intel, pictured on the right, is a good example of a triple busted descending triangle.

The triangle is outlined in a thin blue line on the left of the chart. Price closes above the down-sloping trendline at A, making an upward breakout. Price drifts lower to B, busting the triangle for the first time, before reversing direction. The drop below the blue line at B is less than 10%.

Price continues moving higher to C, where it closes above the red line (the top of the triangle). The move above the red line is less than 10% before price reverses, meaning price busted the triangle a second time.

Price drops to D. The drop below the lower red line is still less than 10% before price reverses. The triangle busts for the third time.

If price continues rising by more than 10% above the top red line, then the busting process would end at three busts. Otherwise, the stock can continue busting the triangle additional times by making tall swings above and below the chart pattern.

For a triple (or more) busted descending triangle, look for the following:

  1. Find a double busted descending triangle except that price fails to move more than 10% after the second bust (the up and down moves to C in this example).
  2. Price reverses direction again and closes below the bottom or above the top of the chart pattern, busting it for a third time.
  3. If price fails to move by 10% or more before reversing and closing on the opposite side of the descending triangle, additional up and down busted cycles may continue.

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Busted Descending Triangles: Performance

Here's a few statistics from the book. This is for descending triangles with downward breakouts (so they bust upward) in bull markets, from 276 busted patterns found out of 650.

Busted Descending Triangles: Trading

Picture of Family Dollar (FDO) on the daily scale.

How could you trade a busted descending triangle? The figure on the right gives an example.

A descending triangle appears in December 2010 in Family Dollar (FDO). Price breaks out downward from this pattern at A then gaps upward two days later. To bust the triangle, I require price to close above the top of the triangle and that occurs at B. Even if you placed a buy order at a penny above the top of the triangle, it would not have done any good except getting you in at or near the opening price the day the stock gapped higher. Assuming a fill at the open, the buy order completed at 30.20.

Price fades for several days until getting another boost and moving higher in a straight-line run up.

Not shown, but the stock peaked in late May at 42.03, retraced to a low of 35.31 before another leg up to 51.81, eventually reaching a high of 56.92.

If you traded this one perfectly and sold in May, you could have made 39%. If you closed your eyes and weathered the two large drops along the way, the gain to 56.92 in May 2011 (oddly, the same day a year later) would be 88%

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-- Thomas Bulkowski

See Also

 

Support this site! Clicking any of the books (below) takes you to Amazon.com. If you buy ANYTHING while there, they pay for the referral.

My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

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