Your half right because yes it is seen as a bearish or bullish
a bit homework for you. all based on good news of course
the chart below shows a breakout to the upside in a downtrend
Descending triangle pattern is a type of chart pattern often used by technicians in price action trading. The descending triangle chart pattern forms at the end of a downtrend or after a correction to the downtrend. The descending triangle pattern is the opposite of the ascending triangle pattern. This pattern is known as the bearish triangle descending pattern.
Chart technicians can make use of the descending triangle pattern in order to trade potential breakouts.
Contrary to popular opinion, a descending triangle can be either bearish or bullish. Traditionally, a regular descending triangle pattern is considered to be a bearish chart pattern. However, a descending triangle pattern can also be bullish. In this instance it is known as a reversal pattern.
Descending triangle stock pattern can be viewed as either a continuation pattern or a reversal pattern. The triangle continuation pattern is your typical bearish formation. This pattern occurs within an established downtrend.
On the other hand, a descending triangle breakout in the opposite direction becomes a reversal pattern.
A very important fact to bear in mind when trading the descending triangle is that, it is very subjective. Therefore if you are new trading the descending triangle stock pattern, you need to have a lot of practice. Familiarizing oneself with the triangle pattern trading can allow the trade to build their own custom triangle trading strategies.
Characteristics of a descending triangle pattern
The classic descending triangle pattern forms with a trend line that is sloping and a flat or a horizontal support line. The pattern emerges as price bounces off the support level at least twice. The descending triangle chart pattern occurs after the end of a retracement to a downtrend.
The downside breakout from the support triggers a strong bearish momentum led decline.
However, this textbook pattern seldom occurs in the real markets. In most cases, a descending triangle pattern can also see a sloping base as well. Instead of a flat support level, you can see higher lows being formed.
Not all descending triangles breakout to the downside. You can also see an upside breakout from the descending triangle. In this case, it becomes a continuation pattern instead of a reversal pattern. The same concept of measuring the distance from the support to the first high is used.
This is then projected to the upside for the minimum price objective.
1. The descending triangle pattern breakout
As the name suggests, the descending triangle pattern breakout strategy is very simple. It entails that the trader anticipates a breakout from the descending triangle pattern. This strategy uses a very simple combination of trading volumes and asserting the trend. The descending triangle pattern breakout can be used to capture short term profits.
The first step in trading this strategy is to pick a stock that has been in a downtrend or in a consolidation phase. The time frame of the chart is irrelevant as you can use this strategy across any time period. Once you have identified a stock and the time frame wait for price action to consolidate.
The trader needs to allow for some flexibility in charting the descending triangle patterns. Simply watch for lower highs and lower lows being formed. Once you have identified this price action, the next step is to draw or chart the descending triangle pattern.
The basic premise of using this strategy is to look at volume once the triangle pattern has been observed. You can typically observe that volumes begin to fall toward the end of the descending triangle pattern formation.
The chart below shows an example of the Microsoft (MSFT) daily stock chart. In the chart, you can see that the triangle pattern was formed after price action was trading sideways. After a brief spell, price falls lower before breaking out from the pattern.
Descending triangle pattern breakout strategy
Volumes are usually lower closer to the breakout. Once you identify the lower volume, simply measure the distance from the first high and low. Then you simply project the same from the breakout area which becomes your target price.
This simple volume based descending triangle pattern is easy to trade but requires lot of time to watch the charts.
