As of 11/20/2024
Indus: 43,408 +139.53 +0.3%
Trans: 17,002 -26.31 -0.2%
Utils: 1,055 +1.25 +0.1%
Nasdaq: 18,966 -21.33 -0.1%
S&P 500: 5,917 +0.13 +0.0%
|
YTD
+15.2%
+6.9%
+19.7%
+26.3%
+24.1%
|
 46,000 or 43,000 by 12/01/202418,000 or 16,600 by 12/01/20241,075 or 1,000 by 12/01/202420,000 or 18,400 by 12/01/20246,100 or 5,800 by 12/01/2024 |
As of 11/20/2024
Indus: 43,408 +139.53 +0.3%
Trans: 17,002 -26.31 -0.2%
Utils: 1,055 +1.25 +0.1%
Nasdaq: 18,966 -21.33 -0.1%
S&P 500: 5,917 +0.13 +0.0%
|
YTD
+15.2%
+6.9%
+19.7%
+26.3%
+24.1%
| |
|
46,000 or 43,000 by 12/01/202418,000 or 16,600 by 12/01/20241,075 or 1,000 by 12/01/202420,000 or 18,400 by 12/01/20246,100 or 5,800 by 12/01/2024 | ||
Trading lessons added 6/21/24.
For more information on this pattern, read Encyclopedia of Chart Patterns, 3rd Edition. It has a chapter dedicated to descending triangles.
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.
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At one time, I didn't have a favorite chart pattern because I considered them just buy or sell signals. However, I was starting to show affection for descending triangles with upward breakouts. I've made a lot of money trading this pattern, certainly more than from trading their ascending triangle brothers. However, updated performance numbers say performance has dropped substantially over the decades (almost in half since the 1990s).
Click descending triangle to read about the Elliott wave version.
The above numbers are based on more than 1,300 perfect trades. See the glossary for definitions.
| Characteristic | Discussion |
| Price trend | Can be any direction leading to the pattern. |
| Shape | A price pattern bounded by two trendlines, the bottom one horizontal and the top sloping downward. |
| Touches | Price should touch one trendline at least three times and the other trendline at least twice as distinct peaks or valleys. |
| Crossing | This is important: Price must cross the pattern from trendline to trendline, nearly filling the available space. Avoid descending triangles with abundant white space. |
| Volume | Recedes 78% of the time and gets quite low just before the breakout. |
| Breakout | Can be in any direction but is upward 53% of the time. |
| Confirmation | The pattern confirms as a valid one when price closes outside one of the trendlines. |
Consult the associated figure on the right.
Research shows that after the breakout, the market turns when it reaches the triangle apex.
| Trading Tactic | Explanation | 
The Measure Rule
|
| Measure rule | Compute the height from the highest peak (A) to the horizontal trendline (B) and then multiply it by the above 'percentage meeting price target.' Add (upward breakouts) or subtract (downward breakouts) the difference to the breakout price (the point at which price crosses the trendline) to get a price target (C). | |
| Busted | Price sometimes breaks out in one direction and then reverses to bust out in a new direction. Trade the new direction for a powerful move. | |
| Breakout | The median distance to the breakout is 61% to 65% of the way to the triangle apex (where the trendlines join). | |
| Trend | Triangles that appear far up a rising price trend tend to flame out quicker. Look for triangles with upward breakouts near the start of an uptrend. | |
| Continuation | If price rises into the pattern it breaks out upward 63% of the time. | |
| Volume trend | If volume slopes upward, the median performance improves dramatically. | Score your pattern for performance |
| Yearly low | Downward breakouts within a third of the yearly low do well. Upward breakouts do best either within a third of the yearly high or low (stay out of the middle third). | |
| Throwbacks and pullbacks | Throwbacks and pullbacks hurt performance. |
This descending triangle chart pattern obeys the identification guidelines set for the pattern. At point A, price peaks below the horizontal trendline but few chart patterns are perfect. At point B, price stages a breakout and that results in a swift upward move. Such a strong advance is unusual.
I present the information in slider format, so be sure to click the left or right arrows to view another slide.
I found descending triangles hard to trade. Those that I thought would work properly didn't, while others that I thought were destined to fail, worked. Go figure.
This chart shows an upward breakout from a descending triangle (outlined in red). The breakout happens when the stock closes above the top red trendline (at A). A stop-loss order placed a penny below the bottom red trendline (B) would get you out of the trade before the downward momentum started in earnest, dropping the stock to C. In other words, DO use a stop loss order.
This is an easy trade to avoid. Look for overhead resistance setup by a sideways move, which I've circled in green. The stock hit this and reversed.
This is also an easy trade to make. The stock formed support in 2016 (mostly below the green line) and the triangle rested on that support. Support suggested that the stock wouldn't decline, or if it did, the drop would be modest. Indeed, the stock broke out upward (trade entered: blue dot) and reached the target at the red dot.
Highlighted in green is a multi-peak pattern that sets up a trap. The double bottom looks bullish but with heavy overhead resistance, the stock can't rise far and the trade fails. Notice that the double bottom is below resistance (blue line), which could be a key to the failure (meaning the stock has to push through overhead resistance). Be aware that this type of trap doesn't work all the time.
Here's another variation of the multi-peak trap. Here we see a descending triangle with an upward breakout. However, if you use your imagination, you can picture a head-and-shoulders top, perhaps a complex one (two shoulders on the left and two on the right that are yet to appear). I would expect the stock to rise up to the price level of the left shoulder and then drop. And that's what happened, resulting in a failed trade.
-- Thomas Bulkowski
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