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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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Bulkowski's Down-Sloping Trendlines

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Busted
Patterns
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Patterns
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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 09/18/2017
22,331 63.01 0.3%
9,515 -31.61 -0.3%
739 -7.54 -1.0%
6,455 6.17 0.1%
2,504 3.64 0.1%
YTD
13.0%
5.2%
12.0%
19.9%
11.8%
Tom's Targets    Overview: 09/14/2017
22,450 or 21,500 by 10/01/2017
9,750 or 9,200 by 10/01/2017
775 or 730 by 10/01/2017
6,650 or 6,200 by 10/01/2017
2,600 or 2,425 by 10/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

Down-Sloping Trendlines: Summary

Price follows trends. When you draw a down-sloping line along the price peaks, price often touches the line and falls away without piercing it. The line is called a trendline because it shows the price trend.

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For more information on this pattern, read Trading Classic Chart PatternsTrading Classic Chart Patterns book., pictured on the right, pages 9 to 28.

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

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Down trendline chart pattern

Down Sloping Trendline Chart Pattern

Down-Sloping Trendlines: Identification Guidelines

CharacteristicDiscussion
Log scaleUse the logarithmic scale. Price will signal a trend change sooner on the log scale than on the arithmetic scale.
Minor highsDraw a down-sloping trendline along the price peaks. That way, when the trend changes from down to up, you'll know with a trendline pierce. The numbers in the above chart show price touching the trendline five times.
TouchesThe more touches a trendline has the more powerful the move after a trendline pierce.
SpacingWidely space touches (over the median 29 days each) suggest a more powerful move post breakout.
LengthLong trendlines (more than the median 139 days) are more important than short ones. They lead to more powerful rallies after the trendline pierce.
SlopeShallow trendlines (up to 45 degrees) are more reliable than steep ones (over 60 degrees). Again, they lead to more powerful moves after the trendline pierce.
VolumeA downward volume trend results in a more powerful rally after the trendline pierce.

In each of the above categories, I examined over 200 trendlines and evaluated the price performance after price closed above the down-sloping trendline. I tracked price until it peaked and dropped by at least 20% (a trend change). The move from the trendline breakout price to the high price was the measure.

For example, I found 85 trendlines with 3 price peaks touching the trendline. Price after the breakout climbed 33%. This compares to a rise of 38% from 63 trendlines with 4 touches, 57% rise from 40 trendlines with 5 touches, and so on. I concluded that the more touches, the more powerful the rally after the trendline breakout. Consult my Trading Classic Chart Patterns book for more information on the results.

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Down-Sloping Trendlines: The Measure Rule

Down trendline measure rule

Use the measure rule to predict how far price will rise after an upward breakout (a price pierce) from the trendline. The figure to the left shows a down-sloping trendline with price breaking out upward at point B. From the breakout, find the prior minor high trendline touch. I show it as point A. Measure the widest distance between those two points, measured vertically. In this case, that's the distance from C to D. Multiply that distance by 80% because that's how often this method works when a full height is used, and project the result upward from the breakout price – the point where price pierces the trendline.

For example, if the low at C is 10 and directly above that at point D, the trendline is at 12, the difference is 2. Multiply this by 80% to get 1.60. Suppose the breakout at point B is at 11. That would give a price target of 12.60 (11 + 1.60).

-- Thomas Bulkowski

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. People with braces put their money where their mouth is.