Descending Triangles are easily spotted out in the downtrends of the stocks as continuation chart patterns. Whereas the ascending ones seem to be flat at the top and show an upward slope in the bottom, the triangle turns out to be flat at the bottom with a hypotenuse slope down the triangle. Steps to identify the descending triangle are:
- A trend must exist, as the descending ones already have a well-established downtrend.
- If there are 2 equal lows, then there is a retracement level which would require a minimum of two reference points for the trendline to be drawn.
- Volume can be used as a wide range with the triangle which gets well-established narrow with a decrease in volume before the increase as the price breaks out.
- The descending’s trendline contains the lower highs and supports equal lows.
Triangles occur in both downtrend and uptrends. Since they can be in reversal and continuous patterns, traders wait for the price to break out of pattern to indicate which direction it will go. Since the continuation triangles occur more often, traders aim to focus more on the breakout to the upside during the uptrends and breakout to the downside during the downtrends. In order to draw a triangle, you need to have two highs and low swings each.
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These lines are drawn along with the lows and highs. Whenever a price moves above the upper trendline, it signals the price which is much likely to move up to the higher stand. If there is a drop in price below the lower trendline, One can accommodate the new price swings. A descending triangle is when the upper trendline is sloped towards a downward direction whereas the bottom trendline is horizontal. Remember to place in a stop loss outside the pattern/ For instance, if you are going short on the downside breakout, place a stop loss above the upper triangle trendline.
The height of the base of the triangle or the widest part can give the clue of how far the price would run following in the breakout. To get an estimate, add the height to the breakout point. Subtract the height from the breakout point to get the downside breakout. The trader can use it as a swing low and high to make the estimate, instead of measuring the distance between both the trendline in the graph.
Since the continuations are much more reliable in the market than the reversals. What if a price breaks to the downside during the uptrend? Being a trader, you need to think about this twice before you shorten it up. The traders shouldn’t let the biases interfere with the market’s working. Whereas if an upside triangle may seem to be more like an uptrend, a downside breakout also send you a signal that the uptrend could be trouble or the price can show the chances to move lower. The ratio of the reward and risk on the triangles is way better than 1:1, which turns out to be much favorable.
This happens due to the profile targeting is based on the entire height of the pattern, whereas the stop loss is based on a smaller proportion of the triangle form by the convergence of the trendlines. Favor trades have the potential reward that could outweigh the risk factor for sure out of the trading game.
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