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#1 Live Trading on Glenmark Pharmaceuticals Ltd #1 Live Trading on Godrej Industries Limited #3 Live Trading Session 1-2-3 Strategy 1-2-3-4 Reversal Trading Strategy 10 CHART PATTERNS FOR PRICE ACTION TRADING 10 Habits of successful traders 10 Performing Candlesticks 10 PRICE ACTION BAR PATTERNS YOU MUST KNOW 10 PRICE ACTION CANDLESTICK PATTERNS YOU MUST KNOW 10 Things You Can Learn From The World’s Best Traders 10 TYPES OF PRICE CHARTS FOR TRADING 123 forex trading strategy 123 Trading Strategy 200 SMA 3 Bar Net Line Strategy 6 Best Price Action Trading Strategies 7 RSI TRADING STRATEGIES 9 Advanced & Profitable Trading Strategy 9 Funny Facial Expressions AB = CD Price Action Strategy Abb India Limited Aditya Birla Nuvo Limited Aditya Birla Nuvo Ltd ADVANCED REVERSAL STRATEGY Alice Blue Opening Link Alphabets Amaraja Battries Ambuja Cement Anupam Rasayan India Limited IPO Asian Paint Ltd Aurobindo Pharma Limited Bajaj-Auto Bearish Crossover Bearish Engulfing Bearish Engulfing Candle Bearish Reversal (Red-Red) BEML Ltd Best Stock Market Strategy Bharat Finance Inclusion Blood Rain Pattern bollinger band Bollinger Band Price goes below Mid line Strategy Bollinger Band Price gone above mid line Bollinger Band Strategy Breakout Stock Trading Strategy Bullish Crossover Bullish Engulfing Bullish Gartley Pattern Strategy Bullish Three Bar Reversal Butterfly Spread Cadila Healthcare Limited Calendar Spread Camarilla Equition canara Bank Candlestick Charts Candlestick Patterns Candlestick Patterns Strategy Cesc Limited Chart Patterns Cipla Closing Above Previous High for 3 Days Closing Below Previous Low For 3 Days coal India Cup & Handle Pattern Daily Life of a Trader dark cloud cover Day Trading Breakout Day Trading Setups Day Trading Setups – 6 Classic Formations Day Trading Strategy DBLHC Descending Triangle Divergence Price Action Strategy DIVI'S Laboratories Ltd Doji Candlestick Patterns Dojis Double EMA Dr Reddy Dr. Reddy's Laboratories Limited Early Morning Range Breakouts – 4 Trading Strategies EMA Equity Market EXHAUSTION BAR Falling Wedges (26th Dec 2017) Federal Bank fibonacci Fibonacci Retracement Fibonacci Retrenchment Strategy Fibonacci swing trading strategy Flag Pattern Strategy Flash Pattern Forex Trading Strategies Fyers Account Gandhi Jayanti Gap Up Gartley Pattern Glenmark Pharmaceuticals Limited godrej Godrej Consumer Products Limited Godrej India Gppl Happy Birthday Happy Chhath Puja Happy Diwali Happy Diwali (2017) Happy Diwali (2018) Happy Dussehra Happy Ganesh Chaturthi Happy Holi Happy Independence Day 2017 Happy Janmashtami Happy Krishna Janmashtami 2017 Happy Muharram 2017 Happy Navratri To All Happy Teacher Day Harmonic Pattern HCL Technology HDFC HDFC Bank Head & Shoulders breakout Head & Shoulders Pattern (6th Oct 2017) Head and Shoulders Pattern Higher high of 3 days Hikkake Pattern Hindustan Petrolium Hindustan Unilever Hindustan Unilever Limited HOW TO DRAW TRENDLINES How To Trade Supply And Demand IndusInd Bank Indusind Bank Ltd Infosys INSIDE BAR Inside Bar - 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#1 Live Trading on Glenmark Pharmaceuticals Ltd
#1 Live Trading on Godrej Industries Limited
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1-2-3 Strategy
1-2-3-4 Reversal Trading Strategy
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10 Habits of successful traders
10 Performing Candlesticks
10 PRICE ACTION BAR PATTERNS YOU MUST KNOW
10 PRICE ACTION CANDLESTICK PATTERNS YOU MUST KNOW
10 Things You Can Learn From The World’s Best Traders
10 TYPES OF PRICE CHARTS FOR TRADING
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Saturday 26 September 2020

Top Six Candle Concepts

- 2 comments





  1. Changing of the Guard™ - COG
  2. Wide Range Body - WRB
  3. Narrow Range Body – NR
  4. Narrowing Range Bodies - NRB
  5. Topping Tail - TT
  6. Bottoming Tail - BT


1. Changing of the Guard Bar - COG

A Bullish COG is defined as three or more consecutive

red bars followed by a green bar.


A Bearish COG is defined as three or more consecutive

green bars followed by a red bar.


While there are different variations, the message is always

the same ! A reversal in momentum has occurred!


example Dark Cloud Cover, Piercing Pattern, Bullish Engulfing, Bearish Engulfing, Counter Attack Lines Thrusting Lines C

2. Narrowing Range Bars - NRB

A series of bars in which the difference between the highs and lows is

Narrowing.


While there are different variations, the message is

always the same ! A slowing in momentum is occurring!

3.Narrow Range Bodies - NR

Bars in which the body of the candle is small relative to the overall length

of the candle. They may have Tails on either side of the body.


While there are different variations, the message is

always the same ! A slowing in momentum has occurred!


Example of Narrow Range Bodies & Bars: Hanging man, Inverted Hammer, Shooting Star, DOJI Harami , Long Legged Doji

4.Topping Tail Bars - TT

Bars in which prices had been higher, then supply forced prices

lower into the lower part of the bars range.


While there are different variations, the message is

always the same ! Distribution has occurred!


5.Bottoming Tail Bars - BT

Bars in which prices had been lower, then demand forced prices

higher into the upper part of the bars range.


While there are different variations, the message is

always the same ! Accumulation has occurred!


6.Wide Range Bar - WRB

A Bar in which the Candle Body is relatively wide compared to the

most recent bars .


A Wide Range Bar after a period low volatility ignites momentum in

that direction.


A Wide Range Bar after an extended advance or decline typically

happens near the end of a move. An NR or NRB will signal the turn.



Thursday 24 September 2020

Calendar Spread

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Calendar Spread

A Long Calendar Spread is a low-risk, directionally neutral strategy that profits from the passage of time and/or an increase in implied volatility.

Directional Assumption: Neutral

Setup: A calendar is comprised of a short option (call or put) in a near-term expiration cycle, and a long option (call or put) in a longer-term expiration cycle. Both options are of the same type and use the same strike price.

- Sell near-term Put/Call
- Buy longer-term Put/Call

Ideal Implied Volatility Environment : Low

Max Profit: The maximum profit potential of a Calendar Spread can’t be calculated due to both options being in different expiration cycles. One of the most positive outcomes for a Calendar Spread is for the trade to double in price.

How to Calculate Breakeven(s):The break-even for a calendar spread cannot be calculated due to the different expiration cycles being used. A guideline we use is within 1 strike of the Calendar Spread’s strike price.

Wednesday 23 September 2020

Iron Condor Option

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Iron Condor

An Iron Condor is a directionally neutral, defined risk strategy that profits from a stock trading in a range through the expiration of the options. It benefits from the passage of time and any decreases in implied volatility.

Directional Assumption: Neutral

Setup:
- Sell OTM Call Vertical Spread
- Sell OTM Put Vertical Spread

Ideal Implied Volatility Environment : High

Max Profit: The maximum profit potential for an Iron Condor is the net credit received. Maximum profit is realized when the underlying settles between the short strikes of the trade at expiration.

How to Calculate Breakeven(s):
- Upside: Short Call Strike + Credit Received
- Downside: Short Put Strike - Credit Received

Iron Fly Option

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Iron Fly

An Iron Fly is essentially an Iron Condor with call and put credit spreads that share the same short strike. This creates a very neutral position that profits from the passage of time and any decreases in implied volatility. An Iron Fly is synthetically the same as a long butterfly spread using the same strikes.

Directional Assumption: Neutral

Setup:
- Buy OTM Put option
- Sell Straddle (short call and short put at the same strike, typically At-The-Money)
- Buy OTM Call option

Ideal Implied Volatility Environment : High

Max Profit: Credit received

How to Calculate Breakeven(s):
- Upside: Short Call Strike + Credit Received
- Downside: Short Put Strike - Credit Received

Ratio Spread Option

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Ratio Spread

Front Ratio Put Spread

A Put Front Ratio Spread is a neutral to bearish strategy that is created by purchasing a put debit spread with an additional short put at the short strike of the debit spread. The strategy is generally placed for a net credit so that there is no upside risk.

Directional Assumption: Neutral to slightly bearish

Setup:
- Buy an ATM or OTM put option
- Sell two further OTM put options at a lower strike

Ideal Implied Volatility Environment : High

Max Profit: Distance between long strike and short strike + credit received

How to Calculate Breakeven(s): Short put strike - max profit potential


Front Ratio Call Spread

A Call Front Ratio Spread is a neutral to bullish strategy that is created by purchasing a call debit spread with an additional short call at the short strike of the debit spread. The strategy is generally placed for a net credit so that there is no downside risk.

Directional Assumption: Neutral to slightly bullish

Setup:
- Buy an ATM or OTM call option
- Sell two further OTM call options at a higher strike

Ideal Implied Volatility Environment : High

Max Profit: Distance between long strike and short strike + credit received

How to Calculate Breakeven(s): Short call strike + max profit potential

POPGUN BAR PATTERN TRADING SETUP

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 On daily charts, outside bars represent an erratic session and are always worth a closer look. The Popgun pattern is one that incorporates an outside bar as its trigger. I first came across it on Elliot Wave International’s website, where Jeffrey Kennedy wrote a short piece to discuss it. In this article, we’ll study this simple pattern and the market context that makes them useful.

Jeffrey Kennedy designed the Popgun pattern as a way to pinpoint the start of impulse waves within the Elliot wave framework.

For those who are unfamiliar with Elliot waves, it is a form of cycle analysis that focuses on counting price waves. Although Elliot wave is a sub-topic of technical analysis, its depth and complex nuances justify it as a discipline on its own.

You do not need to be an Elliot wave expert to make use of the Popgun pattern. But it’s good to have at least some understanding of this popular theory. Investopedia has a great introduction here.

IDENTIFYING THE POPGUN BAR PATTERN

To trade the Popgun bar pattern, you must know the following basic bar patterns:

  • Inside Bar
  • Outside Bar

An inside bar is one that is completely engulfed by the bar before it. It represents a contraction in range and a pause in directional market movement.

Inside Bar Pattern

An outside bar is the opposite of the inside bar. It completely engulfs the bar before it, showing strength in both directions.

Depending on the context, it is a sign of strength or a precursor to erratic movements.

As shown below, the Popgun bar pattern consists of an inside bar followed by an outside bar.

Popgun Bar Pattern

HOW TO TRADE THE POPGUN BAR PATTERN

TRADING RULES

These are the basic trading rules you must follow.

LONG TRADING SETUP

  1. A Popgun Bar Pattern
  2. The outside bar must be bullish (i.e., close higher than open)
  3. Buy on the close of the outside bar

SHORT TRADING SETUP

  1. A Popgun Bar Pattern
  2. The outside bar must be bearish (i.e., close lower than open)
  3. Sell on close of the outside bar

TRADING GUIDELINES

Here are a few trading guidelines you should follow for the optimal setups:

  • Take with-trend setups.
  • Look for patterns with an outside bar that closes beyond the range of the inside bar preceding them.
  • Avoid congested price zones.

POPGUN BAR PATTERN TRADE EXAMPLES

Let’s go through four examples to cover a range of trading scenarios involving the Popgun bar pattern.

EXAMPLE #1: LONG POPGUN BAR PATTERN WITH SUPPORT ZONE

This example shows a daily chart of Maxim Integrated Products Inc. listed on NASDAQ.

Observe how areas of earlier congestion acted as reliable support and resistance levels.

Popgun Bar Pattern Winning Trade

  1. After a swift decline, a Popgun bar pattern formed around a significant support level. This trade was interesting as we saw two consecutive Popgun trading setups. As a result, it is also an inside-outside-inside (ioi) bar pattern coined by Al Brooks in his price action trading series.
  2. The resistance area where prices have congested before was the perfect price target for this trading setup. More ambitious targets might have resulted in a loss.
  3. After moving sideways for a few days, the market reversed down quickly with a wide gap.

Although not marked in the chart, the resistance level (top dotted line) coincides with the 50% retracement of the decline from the top of the trading range.

Jeffrey Kennedy mentioned that this pattern retraces significantly, just like a popgun. Hence, trailing stops might not be the best tool to employ here. Consider taking profits at a logical price target.

EXAMPLE #2: INSIDE-INSIDE-OUTSIDE BAR PATTERN

This chart shows two instances of a specific form of the Popgun pattern – the inside-inside-outside bar pattern.

Located within the same trend context, they offer a fantastic chance for comparative analysis.

Inside Inside Outside Bar Example

  1. Both circled patterns contain the inside-inside-outside bar pattern. Essentially, it is a Popgun pattern preceded by an inside bar.
  2. Let’s start with the first instance. It formed after the market pulled back within a bull trend. The bullish Popgun pattern halted the bearish pullback.
  3. Furthermore, the final outside bar was a bull trend bar that closed above the inside bar before it.
  4. Now, let’s turn our attention to the second instance, which did not perform well as a timing device. No bearish pullback preceded this Popgun pattern. The Popgun pattern halted the market’s push to a new high. This development did not fit the ideal price concept we had in mind, which was that the Popgun should pinpoint the start of a bullish impulse wave.
  5. On top of that, the outside bar here was not as bullish as the one in the first instance. It did not close above the previous inside bar. Its top shadow was longer than its bottom shadow, and it took on the appearance of a doji.

Unlike the first Popgun pattern, the second instance failed to pinpoint the start of a bullish wave. However, the market continued to rise eventually.

In our analysis, it’s good to make a distinction between the market context and the timing device. In this case, while the timing device failed, the bullish market context was still in place.

Having a clear distinction in your analysis will help you decide what to do after a failed trade. Do you look for a re-entry in the same direction? Or do you switch mode and look for setups in the opposing direction?

An interesting note: the inside-inside-outside pattern we observed in this example is akin to a micro triangle breakout. If we zoom down to faster timeframes, we would likely find a triangle chart formation followed by a bullish breakout.

EXAMPLE #3: LOSING INTRADAY TRADE

Let’s try to find an intraday Popgun bar pattern. This is a 30-minute chart of EUR/USD futures on CME.

Popgun Bar Pattern Losing Trade

  1. Despite the healthy bear trend bar, the extended bottom tail hinted at buying pressure. Together with the bullish inside bar that followed, the bear move seemed to lack follow-through.
  2. At this point, the market started to congest and moved sideways. The series of dojis made the meandering apparent.
  3. This outside bar completed the bearish Popgun bar pattern. However, the outside bar barely managed to close below its open, and was a doji itself. Hence, it was not surprising that the market ignored it entirely and proceeded to rise.

In this example, the general market bias was bullish. You could see that from two key observations:

  • The sustained bullish thrusts that pushed to new market highs
  • The most potent bearish bar was rejected almost immediately. (As highlighted in Point #1 above)

On top of that, consider the poor form of the Popgun pattern.

Considering these factors, a prudent trader would have decided against taking this bearish setup.

EXAMPLE #4: DOUBLE BOTTON & POPGUN PATTERN FAILURE

This daily chart from the SPY ETF shows two Popgun patterns.

  • The first instance forms the second swing low of a double bottom chart pattern.
  • The second shows a failed pattern which a nimble trader could still take advantage of.

Popgun Pattern Failure

  1. A salient feature of the market context was the series of high volume bars. They projected an established support zone.
  2. The arrow points to the outside bar of the Popgun pattern. On top of enjoying support from the projected level, both bars of the pattern were bullish. It was a solid signal for a double bottom bullish reversal.
  3. A bearish Popgun pattern formed here. However, if you observe the sideways price action at that point, there were far more instances of bullish momentum than bearish ones. Hence, we should hesitate to commit to a bearish position.
  4. Moreover, the pattern did not enjoy any bearish follow-through. The market threw up a congestion zone immediately, hinting at the pattern’s eventual failure.
  5. Finally, for traders who were looking for bullish entries, the failure of the bearish Popgun pattern offered a reliable option.

This compact chart exhibits two critical lessons.

  • The broader context is critical for a price pattern’s success. Here, recognizing the double bottom gave us confidence in the Popgun setup.
  • A failed trading setup can be as helpful as a successful one. In this example, the failure pattern offered a great entry point for bullish traders.

CONCLUSION – POPGUN BAR PATTERN

This pattern focuses on the change from range contraction (inside bar) to range expansion (outside bar). It interprets this change as a sign of strength.

With this underlying concept in mind, we should only consider Popgun bar patterns with a clear directional outside bar and not a long-legged doji.

Generally, outside bars are wild creatures. Price action that follows outside bars is likely erratic. Hence, it’s crucial to check the context for confirmation that an impulse wave is underway. When in doubt, wait for more price action to unfold.

Popgun bar patterns that do not take off immediately tend to test the low of the outside bar (for long trades) before moving up. Hence, the low of the outside bar could serve as a support for potential long trades. The reverse is true for short trades.

Jeffrey Kennedy is an Elliot wave analyst, and he shared this pattern as a way to trade impulse waves within the Elliot wave structure. In our examples, we focused on the pattern and the Elliot wave framework. To learn more about Elliot Wave, consult the authoritative text, Elliott Wave Principle: Key To Market Behavior.


Butterfly Spread

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Long Butterfly Spread

A long butterfly spread is a neutral position that’s used when a trader believes that the price of an underlying is going to stay within a relatively tight range.

Directional Assumption: Neutral

Setup: This spread is typically created using a ratio of 1-2-1 (1 ITM option, 2 ATM options, 1 OTM option).
- Buy Call/Put (above short strike)
- Sell 2 Calls/Puts
- Buy Call/Put (below short strike)

Ideal Implied Volatility Environment : High

Max Profit: The distance between the short strike and long strike, less the debit paid.

How to Calculate Breakeven(s):
- Upside: Higher Long Option Strike - Debit Paid
- Downside: Lower Long Option Strike + Debit Paid

Vertical Spread

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 Long Call Vertical Spread



A long call vertical spread is a bullish, defined risk strategy made up of a long and short call at different strikes in the same expiration.

Directional Assumption: Bullish

Setup:
- Buy ITM Call
- Sell OTM Call

Ideal Implied Volatility Environment: Low

Max Profit: Distance Between Call Strikes - Net Debit Paid

How to Calculate Breakeven(s): Long Call Strike + Net Debit Paid


Long Put Vertical Spread

A long put vertical spread is a bearish, defined risk strategy made up of a long and short put at different strikes in the same expiration.

Directional Assumption: Bearish

Setup:
- Buy ITM Put
- Sell OTM Put

Ideal Implied Volatility Environment: Low

Max Profit: Distance Between Put Strikes - Net Debit Paid

How to Calculate Breakeven(s): Long Put Strike - Debit Paid


Short Call Vertical Spread

A short call vertical spread is a bearish, defined risk strategy made up of a long and short call at different strikes in the same expiration.

Directional Assumption: Bearish

Setup:
- Sell OTM Call (closer to ATM)
- Buy OTM Call (further away from ATM)

Ideal Implied Volatility Environment: High

Max Profit: Credit received from opening trade

How to Calculate Breakeven(s): Short call strike + credit received


Short Put Vertical Spread

A short put vertical spread is a bullish, defined risk strategy made up of a long and short put at different strikes in the same expiration.

Directional Assumption: Bullish

Setup:
- Sell OTM Put (closer to ATM)
- Buy OTM Put (further away from ATM)

Ideal Implied Volatility Environment: High

Max Profit: Credit received from opening trade

How to Calculate Breakeven(s): Short Put Strike - Credit Received

Tuesday 22 September 2020

Strip/ Strap

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Strip 

A strip is a position that is a Bearish strategy that profits from the passage of time and any decreases in implied volatility. The strip is an defined risk option strategy.

Directional Assumption: Bearish

Setup:
- 2*Buy ATM PUT
- 1*Buy ATM CALL

Ideal Implied Volatility Environment : High

Max Profit: Credit received from opening trade

How to Calculate Breakeven(s):
- Downside: Subtract initial credit from Put strike price
- Upside: Add initial credit to the Call strike price

Strap

A strap is a position that is a Bullish strategy that profits from the passage of time and any decreases in implied volatility. The strap is an defined risk option strategy.

Directional Assumption: Bullish

Setup:
- 2*Buy ATM Call
- 1*Buy ATM PUT

Ideal Implied Volatility Environment : High

Max Profit: Credit received from opening trade

How to Calculate Breakeven(s):
- Downside: Subtract initial credit from Put strike price
- Upside: Add initial credit to the Call strike price

Straddle

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Long Straddle

A long straddle is a position that is a neutral strategy that profits from the passage of time and any decreases in implied volatility. The long straddle is an undefined risk option strategy.

Directional Assumption: Neutral

Setup:
- Buy ATM Call
- Buy ATM Put

Ideal Implied Volatility Environment : High

Max Profit: Credit received from opening trade

How to Calculate Breakeven(s):
- Downside: Subtract initial credit from Put strike price
- Upside: Add initial credit to the Call strike price

Short Straddle

A short straddle is a position that is a neutral strategy that profits from the passage of time and any decreases in implied volatility. The short straddle is an undefined risk option strategy.

Directional Assumption: Neutral

Setup:
- Sell ATM Call
- Sell ATM Put

Ideal Implied Volatility Environment : High

Max Profit: Credit received from opening trade

How to Calculate Breakeven(s):
- Downside: Subtract initial credit from Put strike price
- Upside: Add initial credit to the Call strike price

Strangle

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Long Strangle

A long strangle is a position that is a neutral strategy that profits when the stock stays between the long strikes as time passes, as well as any decreases in implied volatility. The long strangle is an undefined risk option strategy.

Directional Assumption: Neutral

Setup:
- Buy OTM Call
- Buy OTM Put

Ideal Implied Volatility Environment : High

Max Profit: Credit received from opening trade

How to Calculate Breakeven(s):
- Downside: Subtract total credit from short put
- Upside: Add total credit to short call


Short Strangle

A short strangle is a position that is a neutral strategy that profits when the stock stays between the short strikes as time passes, as well as any decreases in implied volatility. The short strangle is an undefined risk option strategy.

Directional Assumption: Neutral

Setup:
- Sell OTM Call
- Sell OTM Put

Ideal Implied Volatility Environment : High

Max Profit: Credit received from opening trade

How to Calculate Breakeven(s):
- Downside: Subtract total credit from short put
- Upside: Add total credit to short call


Naked Options

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Short Naked Put

A Short Naked Put is a bullish strategy that is executed by simply selling a put option. It is a common strategy that can be used to buy shares of stock at a lower price, while keeping the premium collected if the stock price does not decrease.

Directional Assumption: Bullish

Setup: Sell OTM Put

Ideal Implied Volatility Environment: High

Max Profit: Credit received from opening trade

How to Calculate Breakeven(s): Strike price - credit received


Short Naked Call

A Short Naked Call is a bearish strategy that is executed by selling a call option without being “covered” by long stock or a long call option. Selling naked calls is an undefined risk strategy.

Directional Assumption: Bearish

Setup: Sell OTM Call

Ideal Implied Volatility Environment: High

Max Profit: Credit received from opening trade

How to Calculate Breakeven(s): Strike price + credit receive
d

How the Descending Triangle Pattern Works

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The descending triangle pattern is a popular bearish continuation pattern that is created by drawing a horizontal line that connects low points and a trend line that connects lower highs. Sometimes the pattern occurs in a reverse during an upward trend as well. It is one of the three important triangle patterns defined by classical technical analysis. The other two being the ascending triangle and the symmetrical triangle.

descending triangle pattern

The descending triangle chart pattern also goes by the name of a falling triangle, which allows traders to measure the distance from the start of the pattern, represented by the highest point, all the way to the flat support line. This type of technical analysis identifies a downward trend, which will eventually break through the resistant levels causing the price action to plummet.



Traders look for descending triangles because the pattern indicates a breakdown may be coming. Usually, when a price drop happens, buyers come in the push the price up even higher. However, the descending triangle indicates when there is a lack of buying pressure. Here, sellers begin selling at even lower prices, which suggests a series of lower highs. A breakdown usually occurs when volume is high, and the move following is fast and severe.

Descending triangles are popular because they provide traders with the chance to make considerable profits over a short term. To trade the pattern, technical traders take a bear position after a high-volume break. The price target is usually equal to the entry point minus the vertical distance between drawn lines when the breakdown takes place. The stop loss position is taken at the upper trendline. To profit from a descending triangle, traders have to identify clear breakdowns and avoid false indications. They also have to consider that in case of no breakdowns, the price may test the upper resistance before moving down again to the lower support line.

Descending triangles are the opposite of ascending triangles as they have a horizontal upper trendline and a rising lower one. Reversals can happen with descending triangles as well, but they are usually considered bullish in nature. All triangle patterns provide traders the opportunity to short the stock and set a profit target.

Descending Triangle with Moving Averages

It is important to note that when trying to anticipate a potential breakout, we want to also look at other technical indicators. The simple moving average trend helps confirm the signal to execute the trade.

To help predict upward breakouts, when the price drops after the busted triangle, we check to see if the breakout price is above or below the 200-day simple moving average. When the breakout is below the 200-day simple moving average to trend performs 5% better on average.

To help predict a downward breakout, the opposite is true. When the price breakout is above the 200-day simple moving average, the busted triangle sees a price increase of 13% versus those below the 200-day simple moving average.

Why Is the Descending Triangle Important?

The descending triangle is one of the most popular chart patterns as it’s easy to understand and clearly shows the demand in the stock, or lack thereof. When the price breaks down below the support level, it indicates the stock is likely to continue downward. This bearish pattern enables traders to make above-average returns over a short period. Descending triangles may also point to a reversal pattern or uptrend, but in most cases, they represent a bearish continuation pattern.

Attributes

  • Pattern type: Continuation
  • Indication: Bearish
  • Breakout confirmation: The confirmation for this pattern is a close below the lows on above-average trading volume.
  • Measuring: Subtract the height from the highest highs and the low of the pattern and then subtracted from the breakout level.
  • Volume: The volume declines throughout the descending triangle formation, expanding on the breakout.

Conclusion

The descending triangle pattern can act as a great indicator of a future trend, but it’s not without its limitations. It’s a favorite among traders as the pattern is easy to recognize, but it has been known to have false breakouts, so traders need to manage their trades accordingly. To learn more about stock chart patterns and how to take advantage of technical analysis to the fullest, be sure to check out our entire library of predictable chart patterns. These include comprehensive descriptions and images so that you can recognize important chart patterns scenarios and become a better trader.