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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Chart Patterns: After the Buy
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Bulkowski's Descending Triangles

Class Elliott Wave Fundamentals Psychology Quiz Research Setups Software Tutorials More...
Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 09/30/2016
18,308 164.70 0.9%
8,079 93.93 1.2%
668 -5.06 -0.8%
5,312 42.85 0.8%
2,168 17.14 0.8%
YTD
5.1%
7.6%
15.6%
6.1%
6.1%
Tom's Targets    Overview: 09/30/2016
18,600 or 17,800 by 10/15/2016
8,350 or 7,700 by 10/15/2016
650 or 710 by 10/15/2016
5,450 or 5,100 by 10/15/2016
2,225 or 2,100 by 10/15/2016

Written by and copyright © 2005-2016 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

For more information on this pattern, read Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., pictured on the right, pages 711 to 729.

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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.

Click descending triangle to read about the Elliott wave version.

 

Descending triangle chart pattern

Descending Triangle

Important Bull Market Results for Descending Triangles

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%

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Descending Triangle Identification Guidelines

CharacteristicDiscussion
Price trendCan be any direction leading to the pattern.
ShapeA price pattern bounded by two trendlines, the bottom one horizontal and the top sloping downward.
TouchesPrice should touch each trendline at least twice as distinct peaks or valleys.
CrossingThis is important: Price must cross the pattern from trendline to trendline, nearly filling the available space. Avoid descending triangles with abundant white space.
VolumeRecedes 83% of the time and gets quite low just before the breakout.
BreakoutCan be in any direction but is downward 64% of the time.
ConfirmationThe pattern confirms as a valid one when price closes outside one of the trendlines.
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Descending Triangle Trading Tips

Consult the associated figure on the right.

Trading TacticExplanation
Measure ruleCompute 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).
BustedPrice sometimes breaks out in one direction and then reverses to bust out in a new direction. Trade the new direction for a powerful move.
BreakoutThe 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.
TrendTriangles 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.
ContinuationIf price rises into the pattern it breaks out upward 73% of the time.
Volume trendIf volume slopes upward, the pattern tends to perform better.
Yearly lowDownward breakouts within a third of the yearly low do well. Upward breakouts show no significant trend.
Throwbacks and pullbacksThrowbacks and pullbacks hurt performance.
Descending triangle chart pattern measure rule
The Measure Rule
 
Score your pattern for performance
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New research shows that after the breakout, the market turns when it reaches the triangle apex.

Descending Triangle Example

Descending triangle chart pattern 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.

-- Thomas Bulkowski

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Other Descending Triangle Examples

See Also

Written by and copyright © 2005-2016 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Proofread carefully to see if you any words out.