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Descending Triangle Update

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EconomicPuzzles   Saturday, 11/22/14 11:44:10 AM
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Descending Triangle Update


The triangle has confirmed per its breakdown on Thursday this week . It did in fact print the low .20's . In an earlier post of mine I had mentioned that its formation began July 31 . This is wrong . Its actual formation began on July 21 at the 38 cent top ,according to my interpretation .


Since the chart above is a chart from Stockcharts.com , I will use their definition to describe what sort of a target point could be anticipated concerning price .


Per the Stockcharts.com website , here below is each individual part of the pattern ,


The descending triangle is a bearish formation that usually forms during a downtrend as a continuation pattern. There are instances when descending triangles form as reversal patterns at the end of an uptrend, but they are typically continuation patterns. Regardless of where they form, descending triangles are bearish patterns that indicate distribution .



1-Trend: In order to qualify as a continuation pattern, an established trend should exist. However, because the descending triangle is definitely a bearish pattern, the length and duration of the current trend is not as important. The robustness of the formation is paramount.




2. Lower Horizontal Line: At least 2 reaction lows are required to form the lower horizontal line. The lows do not have to be exact, but should be within reasonable proximity of each other. There should be some distance separating the lows and a reaction high between them.




3. Upper Descending Trend Line: At least two reaction highs are required to form the upper descending trend line. These reaction highs should be successively lower and there should be some distance between the highs. If a more recent reaction high is equal to or greater than the previous reaction high, then the descending triangle is not valid.




4. Duration: The length of the pattern can range from a few weeks to many months, with the average pattern lasting from 1-3 months.




5. Volume: As the pattern develops, volume usually contracts. When the downside break occurs, there would ideally be an expansion of volume for confirmation. While volume confirmation is preferred, it is not always necessary.




6. Return to Breakout: A basic tenet of technical analysis is that broken support turns into resistance and visa versa. When the horizontal support line of the descending triangle is broken, it turns into resistance. Sometimes there will be a return to this newfound resistance level before the down move begins in earnest.




7. Target: Once the breakout has occurred, the price projection is found by measuring the widest distance of the pattern and subtracting it from the resistance breakout.

stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:descending_triangle_continuation


In this case the descending triangle projects a potential low target at 13 cents . This price projection would be considerably below what I deem to be an important support point at .185 . And if it were to drop to as low as 13 cents ,then I would expect it to continue downwards and wipe out the parabolic curve in totality .

You can also debate where the triangle originally began . Some would say it is a continuation pattern from a prior descent and the peak of the triangle was on September 16 at 31 cents and its support was at 25 cents , projecting a low at 19 cents . I'll leave that part for you to determine .




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