Descending Triangle - Descending Triangle Pattern
Descending triangle patterns are bearish and often form within
downtrends in stocks as continuation patterns. The descending triangle pattern resembles a
narrowing triangle with a horizontal line of support beneath the stock
and a descending trend line or
downtrend line above the stock. The
horizontal trend line serves as support which temporarily prevents the stock from
declining, while the descending trend line above the stock signals that sellers
are still present.
A downside penetration of the horizontal trend line is a technical sell
signal for a stock breaking down from a descending triangle pattern, and
indicates distribution will follow.
Context: Found within a downtrend, the descending triangle forms as a
consolidation period within the downtrend and indicates downside continuation will
follow.
Appearance: The trend is well-established, and the formation of the
descending triangle is a resting phase for the stock. A trend line can be
drawn connecting multiple lows during this time, which should be horizontal to
indicate some support beneath current prices. A second trend line is a descending or
downtrend line which connects multiple lower highs during this
period, completing the descending triangle pattern. A breakdown should occur
about 2/3 of the way into the triangle, and happens when the support level is
broken and sellers rush to unload shares. A
stock which does not break down prior to reaching the apex of the triangle is
generally sluggish and often a less reliable trading candidate. Volume
contracts during the consolidation phase, and should expand during the breakdown.
Breakdown Expectation: The widest portion of the triangle may be
measured and subtracted from the breakdown point (support level) to determine the
expected price decline which follows.
This stock formed a descending triangle
pattern during its downtrend which led to further selling and continuation of
the downtrend. The technical sell signal
is when price breaks the lower horizontal trend line and volume expands as the
selling resumes to push the stock lower.
Be sure to learn more about
triangle patterns such as the
ascending triangle pattern and the
symmetrical triangle pattern.
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