the hAnDbook of teChniCAl AnAlysisdownside. Notice how volume diminishes as the formations converge toward
their apexes.
Descending triangles are bearish formations. They are characterized by suc-
cessively lower peaks with equal or matching troughs. There are regarded as
continuation formations in a downtrend and reversal formations in an uptrend.
Once the two trendlines are formed, the formation is complete. No breakout is
necessary for pattern completion. Volume should ideally subside as the formation
develops toward the apex. Volume should subsequently expand during a break-
out and decline on a subsequent retest. A breakout tends to occur when volume
tests its historical low threshold levels. A breakout is usually expected around
the two‐thirds to three‐quarters point along the width of the triangle. The forma-
tion fails if no clear downside breakout occurs with price trading through the
apex or breaking out toward the upside. The minimum one‐to‐one price objec-
tive is simply the projection of the vertical height at the base of the triangle from
the downside breakout level. Further price objectives are derived from its two
parallelogram‐based price targets. Short entries may be initiated at the downside
breakout level with stoplosses placed above the support or above a peak within
the formation. Short entries may also be initiated at the opposite inflection point
prior to a breakout, with a stoploss placed just above the opposite trendline. It
should be noted that if the breakout occurs to the upside, the minimum one‐to‐
one price projected target may also be used to determine the minimum price ex-
cursion for the failed formation. The associated parallelogram‐based targets may
also be used. See Figure 13.32.
figUre 13.32 An Idealized Descending Triangle Formation.