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Written by and copyright © 2005-2010 by Thomas N. Bulkowski. All rights reserved.
For more information on this pattern, read
Encyclopedia of Chart Patterns, Second Edition  ,
pictured on the right, pages 711 to 729. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.
Until recently, I didn’t have a favorite chart pattern because I considered them just buy or sell
signals. However, I am beginning 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. Consider trading this
pattern whenever you see it.
Click descending triangle to read about the Elliott wave version.
Descending Triangle
Important Bull Market Results
Overall performance rank for up/down breakouts (1 is best): 5 out of
23; 10 out of 21
Break even failure rate for up/down breakouts: 7%; 16%
Average rise/decline: 47%; 16%
Throwback/pullback rate: 37%, 54%
Percentage meeting price target for up/down breakouts: 84%, 54%
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Identification Guidelines
| 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 each 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 83% of the time and gets quite low just before the breakout. |
| Breakout | Can be in any direction but is downward 64% of the time. |
| Confirmation | The pattern confirms as a valid one when price closes outside one of the trendlines. |
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Trading Tips
Consult the associated figure on the right.
| Trading Tactic | Explanation |
| 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 average distance to the breakout is 64% of the way to the triangle apex (where the trendlines join). The most powerful happen 80% to 85% of the way
to the apex. |
| 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 73% of the time. |
| Volume trend | If volume slopes upward, the pattern tends to perform better. |
| Yearly low | Downward breakouts within a third of the yearly low do well. Upward breakouts show no significant trend. |
| Throwbacks and pullbacks | Throwbacks and pullbacks hurt performance. |
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 The Measure Rule
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New research shows that after the breakout, the market turns when it reaches the triangle apex.
Example
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.
Other Examples
-- Thomas Bulkowski
Copyright © 2005-2010 by Thomas N. Bulkowski. All rights reserved. Proofread carefully to see if you any words out.
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