Descending triangle pattern is another triangle pattern that form with one horizontal line and one downward sloping line. Descending triangle could be bullish or bearish.
Trend line: Trend line indicates the stock possible movement path. An establish trend line is good for the pattern. Depends on the position of the pattern it could be bearish continuation pattern or bullish reversal pattern. Established trend line help to understand the possible breakout.
Horizontal line: This pattern lower part has a horizontal line. To form the horizontal line, pattern must have at least two connecting points. More is better for the pattern.
Downward sloping line: this triangle pattern formed with a downward sloping line. This line must be connecting with 2 or more points in order to form the pattern.
Volume: Volume is also a good indicator of pattern consistency. If breakout occurs with big volume and volume dry up during the formation of the triangle, a good sign that this pattern is not a false breakout.
Retouch the pattern: some time stock break out but came back to the pattern borderline and started to move again. This is actually good for the pattern and reaffirms that pattern is moving on the right direction.
In the chart we use CSX, to show how to enter the trade and if pattern fails, when to exit the trade and possible entry and exits points.
Entry to the Triangle Pattern Trade
in the above chart entry is after breakout occur. Some people enter the trade immediately after the breakout. This is risky as this could be false breakout. Better approach is to wait and see how stock played out after the break out occurs and the number of volume traded at that time. Entry point is above or at the brown line at 28.08. If everything works out right, first entry target point should be at point G.
EXIT 1 For Triangle Pattern
In the above chart, first exit point is below the breakout bar. The reason for this exit is if stock close down the breakout candle, that means stock closed within the pattern. This means stock performance is not strong enough to reach to the target point. This is a conservative exit strategy.
Exit 2 for Triangle Pattern
If stock comes back to pattern and stays with the pattern, the pattern is still intact. But if stock break down the horizontal line, the pattern is broken. Now this pattern is becomes a reversal pattern and trader will enter for short trade. That’s why exit point 2 is really important and there is not enough strong reasons to hold the position after that point. In the chart, exit point 2 is 26.5. after that point stock is ready for rather bearish set up depends on volume and other technical indicator.
this chart pattern is applicable for any timeframe. One can use it for longer time frame or shorter time frame. Results will be better if trader use it with other technical indicators.