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Hey, this is Sasha and welcome to another episode of Let's Talk Stocks.
In this episode, we're going to take a look at the descending triangle pattern -- which is a continuation pattern.
I want to take a look at:
- What it looks like;
- The previous trend;
- The volume;
- Entry point; and
- A few final tips.
First off, let's start with what it looks like
Here, the descending triangle pattern looks like a flat support line.
So here, we have our support level.
And then the upper part of the triangle descends or declines.
Our previous trend starts from the upside. So, we're going from the upper left, going down -- to the stock price is declining.
As it declines, we come in, and we hit a little peak or where we start bouncing.
Then, we move up, and we hit a resistance level.
We'll call this R1 -- so that's our first resistance.
This is our support one over on the lower level.
As we play around in this level, we may get a second support point. We may get a resistance level 2 over here.
This is what the stock does for a little bit of time.
Up to the point where we start rolling over and start moving into lower prices.
Now sometimes, this pattern can -- you might start trying to think or create this pattern at these upper peaks or before the trend began.
Really, by the time you evolve and see this pattern, you'll probably be in the second or third or fourth resistance level.
Sometimes, this could be resistance 3, resistance 4 -- where you start noticing it and discovering it.
That's what the pattern looks like.
The Previous Trend
Of course, starts at the upper left. Moves then, to the lower right and we're continuing on that pattern.
This is just a pausing pattern where some buyers are thinking of coming in.
They may think that this is maybe a double bottom something to that effect, but the pattern as it continues to evolve and you don't know that this is a descending triangle till the pattern completes.
Once the pattern moves, it's moving the lower level and into lower prices.
When You're Looking at the Volume
The volume, typically on this pattern, will be stronger as we decline.
So, as you're moving here on the decline, you have relatively strong volume.
Then typically here, as you're moving through the triangle, you might get lighter volume. The volume starts to dry out.
As you look at individual bars day to day or maybe moment to moment, typically, you'll want to see the stronger volume on the declines because it's a continuation pattern, it's a bearish pattern.
You're looking at it being a little more strong as we decline and even stronger as you start breaking that support level.
You're looking for the level of this fatter part of the triangle, as we start from the resistance to the support. You take this, and you move it from that breakout point, and that's your target.
So, your target will be that same range or distance.
Again, that is just a guideline. Doesn't mean it's going to hit it every time. Doesn't say it will even get there but that's the typical goal.
That's because you've had so much energy up here moving and now you're bouncing and playing around in this triangle area. You'll probably have about the same amount of power there.
The amount of energy you push a ball would probably be the same amount of energy that it expels that energy is moving forward.
Here, you're looking at that same amount from that fatter range of the triangle.
As far as entry points go,
Your typical entry point will be when it breaks the support level. That'll be an entry point there and this, of course, is shorting the stock.
At times you may get a potential bounce here where it retests the support and then it rolls over. A second entry point could be again when it bounces. When it bounces and then rejects those levels, that could be kind of entry.
So you're looking at those levels. Of course, you could enter at these rejection levels because it is a shorting pattern.
But you don't know that at times this thing could play a few tricks on you, where it could start breaking and moving to the upside -- which is what some people have trouble with.
And Here are a Few Tips for You
Sometimes, people will think and see that this is a descending triangle pattern, but it could be maybe a double bottom, perhaps a triple bottom.
You can see how you have two supporting points here that are hit where it creates kind of a double bottom or a triple bottom.
In that case, it may fake you out. We're okay now; we're moving to the upside, where it's a reversal pattern.
When you see this declining on the trend on resistance 1, 2 & 3, it does more or less confirm that it is a triangle pattern. But that doesn't mean that you can't digest for an extended period and then kind of move to the upside.
Stock can do anything they want, or you may get a surge of good news, and it changes this whole pattern completely.
The whole pattern is just a way for us to discuss chart trends and how they perform and behave in a particular segment.
For you, what you're looking for the safer approach for entry points is really when it breaks support that would be the shorting opportunity.
If you're looking for a bullish opportunity, sometimes these things could break out right here. This could be a bullish trend here, and you're trying to buy on value.
That's another way of doing things and getting into the stock at you know lower prices because the trend was moving lower.
Just be aware that at times that may play a little bit of a trick on you.
Volume, of course, is beautiful to see as you're declining and then moving. Depreciating in volume or decreasing in volume reduction and volume as we move through this triangle pattern and then again an increase depending on where you're breaking out.
Sometimes, that doesn't happen. Sometimes that happens after you make the break, and then you roll back over a second time. The volume will pick up even more so there because it's confirming the rejection of support which would then be resistance.
But overall, that's what the triangle pattern looks like.
It's a bearish pattern.
Starts from the upper left or higher prices move lower, consolidates because now you see some value buyers stepping in. But there are not enough value buyers.
And because there are not enough value buyers, the stock continues to roll over and goes even further.
That's really what happens within the pattern is that -- there are not enough buyers, and there are even short sellers that could be coming in.
So, in the end, the Bears end up winning.
Just keep in mind that sometimes you do get that bullish break out as this pattern could look into a double bottom, triple bottom or maybe just a distribution consolidation pattern.
Those are usually more horizontal or sideways, but still, it could play a little bit of a trick on you.