“Descending Triangles” are similar to “Ascending Triangles” formation rules except they are bearish. “Descending triangles” form in bear markets and favor breakdowns. A “descending” triangle is bound by two trend lines connecting a downward slope trend line and a flat trend line connecting the lows of the pattern. Trades usually occur near the apex as the price closes outside the bottom trend line suggesting a breakdown. The price must intersect trend lines at least twice before the pattern emerges. Like the Ascending triangles, “Descending Triangles” also have a high success rate.
Trade:
Trade one tick below the low of the breakdown bar (outside of the triangle). Confirm the breakdown with increased volume.
Target:
“Descending” triangles have similar targets like “Ascending” triangles. Measure “Triangle” depth at the lowest and highest points and set targets at 50% and 100% range from the breakdown point.
Stop:
Place a “stop” order outside the downward slope trend line. If price closes above the top trend line, exit the trade.
Trading Descending Triangles
Trading Descending Triangle
The above example illustrates a “Descending triangle” from the daily Gold futures chart. In July 2006, Gold reached 700 and retraced to 620 by the mid of July. Gold made a series of lower highs and a flat bottom near the 620 level to form a “Descending Triangle”. During the first week of September, Gold closed below 620 to trigger a sell-off. The depth of the “Triangle” was 80 (700 to 620) points.
- A “short” trade was entered at 6 18 with target of 570.
- A “stop” order was placed above the trend line at the 640 level.
- A 50% depth target area can be seen from the trade entry.
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