Trading Descending Triangles

The idea behind pattern pairs is to pick a chart pattern type (like broadening bottoms with upward breakouts) to buy and another to sell (like double tops). You buy the upward breakout from the broadening bottom, hold for a few years, and sell when a double top appears and breaks out downward. Along the way, you give price a chance to rise far enough to overcome those trades which are stopped out for a loss. This is a trend-following strategy.

Trading Descending Triangles: Summary

The figure illustrates the idea for trading pattern pairs, where price is the red line and the boxes are chart patterns. This articles assumes you buy an upward breakout from either a descending triangle or a busted descending triangle (price breaks out downward, drops no more than 10%, reverses, and closes above the top of the descending triangle). Buy as price rises above the top of the descending triangle.

On the sale side, you can sell the first bearish chart pattern which comes along or wait for your favorite bearish chart pattern to appear and sell then.

Here's a list of the top five performing sell signals, based on annualized gain (annualized because the hold time is often years, in parenthesis).

The following list shows the expected performance of chart pattern pairs, ranked by their expectancy. Expectancy is a way of gauging winning and losing trades and how much money you might make trading a pattern pair. I put the expected profit per trade, per share, in parenthesis.

Trading using a busted chart pattern results in worse performance than using non-busted patterns (at least for descending triangles as the buy signal).

Trading Descending Triangles: Entry and Exit Conditions

The databases I built over several decades doesn't identify every chart pattern. There may be plenty of double tops over the years, for example, that I didn't catalog on the way to the one I did catalog. So buying an upward breakout from a descending triangle and selling at the double top I cataloged would be different than choosing to sell a different double top. However, the following analysis does give a real-world flavor for how well you might do trading chart patterns if you follow the pattern pair strategy.

I used the following 43 chart patterns in the analysis, but some only applied if they were busted.

Trading Descending Triangles: Stops

I used a stop loss order set a penny below the bottom of the descending triangle. Price on the way down may have gapped below the stop price (for the sale price), so I used the lower of the stop price or the opening price on the day of sale).

For trailing stops, I removed the stop loss order and used a trailing stop set at 10%, 15%, 20%, or 25% below a peak, never lowering the stop value, but raising it if a higher peak came along during the trade.

In Table 1, I calculated the percentage net gain (the average of gains and losses) when using various trailing stop loss amounts (10%, 15%, 20%, and 25%) for all tested chart patterns according to the busted/non-busted buy/sell configuration. In parenthesis is the size of the average loss so I could detail how losses change with various stop loss orders.

For example, if I tested non-busted descending triangles and sold various non-busted patterns (ascending triangles, broadening tops, head-and-shoulders tops, and so on), I made an average of 32% ("Stop Loss Only" column) after having a stop loss order in place. Losses averaged 8%. Replacing the stop loss with a 10% trailing stop cut the gain to 6% but also trimmed the average loss to 5%. Using a 25% trailing stop allowed me to keep more money, 18%, but losses climbed to 14%. If I didn't use any type of stop, the gain averaged 76% with losses averaging 31%.

Trading Descending Triangles: Busted Patterns

Table 1: Various Trailing Stop Settings: Net Profit and (Average Loss)
Data	10%	15%	20%	25%	Stop Loss Only	No Stop
Non-busted buys, non-busted sales	6% (-5%)	8% (-8%)	13% (-11%)	18% (-14%)	32% (-8%)	76% (-31%)
Busted buys, non-busted sales	7% (-6%)	9% (-7%)	13% (-10%)	14% (-12%)	15% (-10%)	71% (-27%)
Non-busted buys, busted sales	5% (-5%)	8% (-7%)	13% (-10%)	17% (-14%)	29% (-7%)	70% (-27%)
Busted buys, busted sales	6% (-6%)	8% (-7%)	14% (-10%)	15% (-12%)	17% (-10%)	77% (-26%)

Trading using a busted chart pattern often results in worse performance than using non-busted patterns (at least for descending triangles as the buy signal).

Table 2 shows what I found when comparing the performance of non-busted patterns (both buy and sell) with busted and non-busted chart patterns. In 22 or 31 contests (22 or 31 different chart pattern types, depending on which apply), I compared the three combinations of busted and non-busted buy and sell signals to non-busted buy and sell signals. The table below shows the percentage of time the busted combination beat the non-busted combination in the contests.

For example, I found that busted patterns won 27% (or 6) of the 22 contests when trading using a busted pattern for the sale.

Trading Descending Triangles: Non-busted Buy, Non-Busted Sale

Table 2: Busted or Non-Busted Contest Winners
	Sell Non-Busted Pattern	Sell Busted Pattern
Buy non-busted pattern	N/A (benchmark)	27%
Buy busted pattern	13%	27%

Table 3 shows statistics I collected for descending triangles using the trading rules described above and shown in the figure. A stop loss order was used and priced a penny below the bottom of the descending triangle (after buying).

For example, if you were to buy the upward breakout from a descending triangle chart pattern and hold it until you encountered a broadening bottom (the first chart pattern listed in the table), but one with a downward breakout, you'd net an average of 47% on the 183 (40 winners, 143 losers) trades. That's an average of 239% on your winners, 7% average loss on your losers, and holding onto the position an average of 1.9 years. You'd find that only 22% of the trades made money but you'd gain an average of 24% per year (ranking 17th where 1 is best). If you removed the stop loss order and just held on until the broadening bottom with a downward breakout appeared, you'd make an average of 75% per trade.

The expectancy averages $2.18 per share per trade which ranks 46th where 1 is the best value.

Notes: All of the above numbers appear in the table except for the average hold time. The rank is based on the net gain for all four performance tables (tables 3 to 6) shown below.

Table 3: Statistics for descending triangles
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank
Broadening bottom	239%	-7%	47%	24%	17	75%	40/143	22%	$2.18	46
Broadening top	175%	-8%	38%	24%	17	93%	84/252	25%	$6.37	14
Broadening formation, right-angled and ascending	73%	-7%	9%	8%	67	46%	36/145	20%	$0.92	67
Broadening formation, right-angled and descending	101%	-8%	16%	12%	52	55%	28/98	22%	$0.64	71
Broadening wedge, ascending	156%	-9%	46%	38%	5	80%	32/65	33%	$3.02	31
Broadening wedge, descending	95%	-9%	11%	9%	63	53%	16/67	19%	$0.32	75
Bump-and-run reversal top	202%	-8%	65%	44%	2	112%	118/222	35%	$7.39	6
Diamond bottom	123%	-9%	17%	17%	34	38%	10/40	20%	$0.80	68
Diamond top	108%	-8%	33%	23%	20	80%	36/66	35%	$5.58	15
Adam & Adam double top	258%	-7%	44%	28%	11	128%	140/582	19%	$5.41	18
Adam & Eve double top	177%	-8%	24%	17%	34	89%	64/304	17%	$2.43	40
Eve & Adam double top	260%	-7%	48%	29%	9	121%	81/311	21%	$6.92	10
Eve & Eve double top	238%	-8%	44%	29%	9	103%	90/333	21%	$7.02	9
Falling wedge	71%	-8%	6%	5%	83	7%	17/78	18%	-$0.73	89
Head-and-shoulders top	165%	-8%	27%	19%	29	75%	247/991	20%	$3.01	32
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank
Head-and-shoulders, complex top	106%	-8%	18%	16%	38	44%	50/166	23%	$1.08	64
Rectangle top	147%	-7%	22%	19%	29	56%	37/158	19%	$2.95	33
Rising wedge	153%	-8%	31%	22%	22	75%	86/269	24%	$4.35	23
Rounding top	209%	-8%	44%	25%	15	68%	40/126	24%	$5.58	15
Ascending scallop	75%	-9%	11%	13%	49	52%	19/59	24%	$1.51	55
Descending scallop	160%	-9%	27%	21%	24	62%	99/368	21%	$1.23	61
Scallop, inverted and ascending	358%	-7%	94%	50%	1	152%	15/39	28%	$17.66	1
Scallop, descending and inverted	168%	-9%	37%	25%	15	54%	75/217	26%	$2.83	36
Triangle, ascending	117%	-8%	24%	18%	32	58%	58/172	25%	$2.92	34
Triangle, descending	123%	-8%	26%	21%	24	47%	64/187	25%	$0.67	70
Triangle, symmetrical	181%	-8%	30%	24%	17	52%	140/572	20%	$2.38	42
Triple top	175%	-8%	29%	18%	32	84%	201/790	20%	$3.62	27
Rectangle bottom	60%	-8%	-1%	-1%	94	-5%	18/141	11%	-$1.54	95
3 falling peaks	179%	-8%	28%	21%	24	57%	159/677	19%	$4.38	22
Roof	96%	-7%	16%	12%	52	56%	14/48	23%	$2.90	35
Roof, inverted	215%	-8%	49%	33%	8	86%	35/73	26%	$4.68	20
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank

Trading Descending Triangles: Busted Buy, Non-Busted Sale

The figure shows the setup for this scenario. When price busts the bearish chart pattern (downward breakout from a descending triangle in a bull market), buy. Sell after a downward breakout from the target chart pattern.

Table 4 shows the performance of busted descending triangles for the entry and sales after downward breakouts from various bearish chart patterns. A stop loss order was used and priced a penny below the bottom of the descending triangle (after buying).

A busted descending triangle has a downward breakout but price drops no more than 10% before reversing and moving above the top of the descending triangle. Buy when price moves at least a penny above the top of the busted descending triangle. Sell after price drops at least a penny below the target chart pattern.

For example, buying a descending triangle with a busted downward breakout in a bull market (the entry price is really the higher of a penny above the top of the triangle or the opening price) and selling after the downward breakout from a broadening bottom shows winners averaging gains of 75%. Losses average 10%, for a net of 11%. Only 72 trades occurred with a win/loss ratio of 25%. This scenario ranks the annualized net gain as 76th among the four tables. If you traded this as a buy-and-hold position, meaning no stops were used, the net gain climbed to 54%. Expectancy was $0.28 per share, ranking 77th where 1 is best.

Table 4: Statistics for Busted Buys, Normal Sales
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank
Broadening bottom	75%	-10%	11%	6%	76	54%	18/54	25%	$0.28	77
Broadening top	89%	-9%	15%	13%	49	79%	22/68	24%	$0.38	74
Broadening formation, right-angled and ascending	52%	-9%	4%	4%	86	44%	16/56	22%	-$1.30	94
Broadening formation, right-angled and descending	81%	-10%	16%			47%	6/15	29%
Broadening wedge, ascending	35%	-9%	-2%	-3%	97	15%	8/38	17%	-$1.04	92
Broadening wedge, descending	36%	-9%	3%			5%	7/19	27%
Bump-and-run reversal top	66%	-9%	18%	16%	38	48%	49/89	36%	$2.67	37
Diamond bottom	134%	-13%	30%			68%	5/12	29%
Diamond top	53%	-9%	16%	14%	45	64%	23/33	41%	$1.61	53
Adam & Adam double top	167%	-9%	26%	16%	38	105%	48/192	20%	$5.47	17
Adam & Eve double top	97%	-10%	10%	7%	71	88%	21/89	19%	$0.72	69
Eve & Adam double top	86%	-10%	13%	7%	71	100%	29/92	24%	$2.34	43
Eve & Eve double top	113%	-10%	18%	12%	52	99%	31/104	23%	$3.59	28
Falling wedge	80%	-8%	7%	6%	76	19%	7/34	17%	-$0.14	83
Head-and-shoulders top	107%	-10%	17%	11%	57	79%	93/305	23%	$2.43	40
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank
Head-and-shoulders, complex top	75%	-10%	23%	19%	29	45%	27/42	39%	$2.24	45
Rectangle top	74%	-10%	9%	6%	76	76%	12/42	22%	$0.59	72
Rising wedge	68%	-10%	6%	5%	83	69%	22/85	21%	$0.31	76
Rounding top	111%	-11%	17%	8%	67	68%	13/43	23%	$1.06	65
Ascending scallop	101%	-7%	35%	28%	11	40%	14/22	39%	$1.80	51
Descending scallop	77%	-10%	17%	11%	57	77%	56/125	31%	$1.32	58
Scallop, inverted and ascending	None	-10%	-10%			143%	0/10	0%
Scallop, descending and inverted	69%	-10%	16%	11%	57	32%	30/62	33%	$1.81	50
Triangle, ascending	53%	-10%	4%	3%	88	44%	19/66	22%	-$0.11	82
Triangle, descending	75%	-8%	18%	13%	49	45%	25/55	31%	$1.36	57
Triangle, symmetrical	99%	-10%	14%	11%	57	66%	40/140	22%	$3.33	29
Triple top	85%	-10%	14%	9%	63	73%	73/218	25%	$1.79	52
Rectangle bottom	55%	-10%	-1%	-1%	94	8%	5/31	14%	-$2.74	98
3 falling peaks	74%	-11%	10%	6%	76	91%	56/170	25%	$1.29	59
Roof	55%	-6%	6%			30%	3/13	19%
Roof, inverted	34%	-9%	-1%	-1%	94	58%	7/28	20%	-$0.64	88
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank

Trading Descending Triangles: Non-busted Buy, Busted Sale

A bullish chart pattern appears and you buy at the breakout. Continue holding until your selected chart pattern appears. The chart pattern is bullish because it has an upward breakout but then things go wrong. Price reverses. Sell when the stock dips below the bottom of the chart pattern (meaning it busts the upward breakout).

Table 5 shows the performance statistics for this setup (buying a normal descending triangle and selling only after a busted chart pattern appears). A stop loss order was used and priced a penny below the bottom of the descending triangle (after buying).

For example, buying a descending triangle with an upward breakout in a bull market and selling a busted broadening bottom shows winning trades making an average of 32%. Losing trades lost 8%, giving a net loss of 4%. The annualized gain is also 4% in this case, giving the setup a rank of 98 (where 1 is best). If you traded this without a stop, the net gain climbed to 21%. Of the stocks I looked at, I found 72 trades with 10% of them winning. Expectancy was a loss of $1.18 per share, ranking 93rd where 1 is best. A negative expectancy means you'll be hard pressed to make money trading this pair often.

Table 5: Statistics for Normal Buy, Busted Sale
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank
Broadening bottom	32%	-8%	-4%	-4%	98	21%	7/65	10%	-$1.18	93
Broadening top	133%	-8%	24%	15%	42	74%	40/141	22%	$2.64	38
Broadening formation, right-angled and ascending	177%	-7%	7%	6%	76	49%	5/64	7%	-$0.55	86
Broadening formation, right-angled and descending	62%	-7%	2%	3%	88	25%	11/70	14%	-$0.24	84
Broadening wedge, ascending	132%	-9%	33%			110%	8/19	30%
Broadening wedge, descending	48%	-10%	5%	4%	86	24%	9/27	25%	$0.07	80
Bump-and-run reversal bottom	63%	-6%	8%	5%	83	30%	9/35	20%	$1.09	63
Cup with handle	55%	-7%	9%			9%	5/14	26%
Diamond bottom	120%	-7%	14%	9%	63	23%	5/25	17%	$4.62	21
Diamond top	228%	-6%	50%	28%	11	84%	15/47	24%	$13.86	2
Adam & Adam double bottom	249%	-7%	38%	20%	27	120%	39/183	18%	$3.04	30
Adam & Eve double bottom	228%	-8%	34%	23%	20	65%	23/105	18%	$7.99	5
Eve & Adam double bottom	128%	-9%	19%	10%	61	95%	21/85	20%	$6.51	13
Eve & Eve double bottom	165%	-6%	26%	14%	45	64%	24/104	19%	$6.54	11
Falling wedge	242%	-7%	69%	38%	5	83%	15/34	31%	$7.31	7
Head-and-shoulders bottom	179%	-7%	37%	20%	27	67%	57/186	23%	$5.13	19
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank
Head-and-shoulders complex bottom	55%	-8%	4%	3%	88	52%	7/30	19%	-$0.55	86
Rectangle top	345%	-8%	34%	35%	7	67%	13/96	12%	$0.14	79
Rising wedge	310%	-8%	74%	42%	3	116%	15/43	26%	$6.52	12
Round bottom	60%	-7%	9%			14%	3/10	23%
Rounding top	184%	-8%	36%			53%	3/10	23%
Ascending scallop	47%	-7%	7%	8%	67	54%	17/50	25%	$0.22	78
Descending scallop	30%	-8%	-6%	-8%	99	17%	2/30	6%	-$2.58	97
Scallop, inverted and ascending	107%	-5%	25%	15%	42	73%	25/66	27%	$4.02	24
Scallop, descending and inverted	169%	-8%	30%	17%	34	69%	6/22	21%	$0.47	73
Triangle, ascending	64%	-7%	10%	8%	67	35%	23/74	24%	$1.05	66
Triangle, descending	114%	-8%	21%	14%	45	56%	21/66	24%	$1.26	60
Triangle, symmetrical	131%	-8%	20%	15%	42	68%	70/276	20%	$1.48	56
Triple bottom	257%	-7%	47%	28%	11	97%	60/233	20%	$9.50	4
Rectangle bottom	93%	-8%	6%	6%	76	22%	10/59	14%	$0.03	81
3 rising valleys	337%	-7%	65%	39%	4	89%	34/129	21%	$12.31	3
Roof	228%	-7%	72%			79%	5/10	33%
Roof, inverted	80%	-7%	15%	12%	52	29%	9/27	25%	$2.18	46
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank

Trading Descending Triangles: Busted Buy, Busted Sale

Table 6 shows the last combination of trading statistics. It shows busted descending triangles as the entry signal and various busted chart patterns as the exit signal. Keep in mind that some trades were few. A stop loss order was used and priced a penny below the bottom of the descending triangle (after buying).

For example, buying and selling a busted broadening top (second data line in the table) made 117% from the winners, lost 10% on the losers for a net gain of 23%. Annualized, it was 17%. The net gain placed the performance of this setup at 34th, where 1 is best. Removing stops from the trades allowed them to make 83%. Only 43 trades were taken and 26% of them were winners. Expectancy was a gain of $3.80 per share, ranking 25th among the four tables.

Table 6: Statistics for Busted Buys and Sales
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank
Broadening bottom	42%	-8%	0%	0%	92	31%	2/10	17%
Broadening top	117%	-10%	23%	17%	34	83%	11/32	26%	$3.80	25
Broadening formation, right-angled and ascending	14%	-12%	-7%			19%	2/10	17%
Broadening formation, right-angled and descending	148%	-8%	35%			72%	6/16	27%
Broadening wedge, ascending	41%	-19%	1%			161%	1/2	33%
Broadening wedge, descending	106%	-9%	0%			51%	1/12	8%
Bump-and-run reversal bottom	35%	-9%	-5%			29%	1/10	9%
Cup with handle	45%	-12%	-3%			0%	2/11	15%
Diamond bottom	275%	-11%	99%			100%	5/8	38%
Diamond top	155%	-9%	23%			104%	4/17	19%
Adam & Adam double bottom	265%	-10%	27%	14%	45	115%	11/71	13%	$2.56	39
Adam & Eve double bottom	171%	-11%	16%	9%	63	96%	8/45	15%	$1.90	49
Eve & Adam double bottom	65%	-9%	4%	2%	91	78%	6/28	18%	-$0.34	85
Eve & Eve double bottom	42%	-11%	-1%	0%	92	36%	6/24	20%	-$0.94	91
Falling wedge	11%	-9%	-6%			210%	2/14	13%
Head-and-shoulders bottom	145%	-9%	34%	16%	38	59%	21/54	28%	$3.63	26
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank
Head-and-shoulders complex bottom	130%	-6%	36%			57%	4/9	31%
Rectangle top	52%	-12%	7%	7%	71	45%	10/24	29%	-$0.74	90
Rising wedge	3%	-9%	-7%			129%	3/19	14%
Round bottom	None	-15%	-15%			3%	0/5	0%
Rounding top	207%	-6%	65%			69%	1/2	33%
Ascending scallop	88%	-9%	6%	6%	76	34%	5/27	16%	-$1.69	96
Descending scallop	3%	-8%	-7%			44%	1/9	10%
Scallop, inverted and ascending	73%	-8%	10%			85%	6/21	22%
Scallop, descending and inverted	38%	-9%	0%			108%	2/8	20%
Triangle, ascending	66%	-10%	13%	10%	61	40%	10/23	30%	$1.16	62
Triangle, descending	176%	-11%	44%	22%	22	101%	9/22	29%	$7.30	8
Triangle, symmetrical	109%	-9%	19%	12%	52	64%	25/80	24%	$2.32	44
Triple bottom	97%	-9%	12%	7%	71	83%	14/55	20%	$1.52	54
Rectangle bottom	64%	-8%	10%			33%	3/9	25%
3 rising valleys	81%	-11%	17%	7%	71	112%	12/27	31%	$2.08	48
Roof	121%	-9%	41%			132%	5/8	38%
Roof, inverted	15%	-13%	-7%			88%	1/4	20%
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy	Expectancy Rank

Trading Descending Triangles: Performance Improvements

Here are a few ideas the data suggested which may improve performance of your pattern pairs trading.

Trend Start: Short, Medium, or Long

Find the trend start for your descending triangle. Often you can just look at a chart and see where the trend begins. If not, or you want to be sure, then the glossary describes how to find it.

Determine the length from the trend start to the pattern's start: short term (less than 3 months), medium term (3 to 6 months) or long term (more than 6 months).

Table 7 shows the results for the four combinations of busted/non-busted trades and the resulting performance.

Buying patterns with a short-term (up to 3 months) duration from the trend start to the pattern's start results in significantly better performance in most cases.

Notice that busted buy patterns (bottom row in the table) underperform non-busted buys in most cases. Don't trade a busted descending triangle.

Moving Averages: 50- and 200-Day SMA

Table 7: Short (S) Medium (M) or Long (L) Trend Start and Performance
	Sell Non-Busted Pattern	Sell Busted Pattern
Buy non-busted pattern	S36% M41% L17%	S39% M32% L9%
Buy busted pattern	S19% M11% L6%	S21% M8% L14%

I checked two moving averages at buy time, 50- and 200-day simple moving averages (not as a crossover setup). I compared the breakout price to the value of the moving average. Table 8 shows the performance of buying or selling busted or non-busted patterns when the breakout price was above (A) or below (B) the 50-day simple moving average (SMA).

Notice that buying non-busted patterns outperformed buying busted ones (compare the two rows). I found that buying a non-busted triangle when the breakout price was above the moving average resulted in better performance than if the buy price was below the SMA.

Table 8: Above (A) Below (B) 50-Day Simple Moving Average
	Sell Non-Busted Pattern	Sell Busted Pattern
Buy non-busted pattern	A36% B23%	A32% B23%
Buy busted pattern	A16% B8%	A21% B3%

Table 9 shows the results of using a longer moving average, the 200-day. Traders often use this as a proxy for the long-term trend.

Non-busted patterns beat the performance of busted patterns (compare the two rows). Buying non-busted triangles worked best if the breakout price was above the 200-day SMA. Busted patterns (bottom row) did slightly better if the breakout price was below the 200-day SMA at buy time.

Selling First Bearish Chart Pattern

The prior discussion assumes you buy a descending triangle (busted or non-busted) but sell a chart pattern of your choosing, such as a downward breakout from a head-and-shoulders top (you wait for one to appear). What if you sold the first bearish chart pattern which comes along? How would you do?

Table 9: Above (A) Below (B) 200-Day Simple Moving Average
	Sell Non-Busted Pattern	Sell Busted Pattern
Buy non-busted pattern	A33% B28%	A30% B27%
Buy busted pattern	A14% B17%	A17% B19%

Table 10 shows the results sorted by the type of patterns involved (busted or non-busted). For example, if you buy a non-busted descending triangle and sell the first non-busted chart pattern which comes along, you'd make 16% on average. Annualized, you'd make 43%. This compares to a 22% annualized gain if you sell a designated pattern (like you waited for a double top before selling, which may or may not be the first bearish chart pattern to come along).

The best results come from buying and selling non-busted patterns. You'll want to avoid selling busted patterns.

The bottom half of the table shows expectancy for the four combinations. The highest expectancy associates with buying and selling non-busted patterns.

Bulkowski on Pattern Pairs: Descending Triangles