Understanding the descending triangle pattern

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Nov. 27 2019, Updated 4:33 p.m. ET

Descending triangle pattern

In the descending triangle pattern, one trend line connects the consecutive peaks and another horizontal line connects the price bottoms. Both of the lines meet to form a descending triangle.

The following chart shows the descending triangle pattern for a NASDAQ stock.

descending triangle1

In a downtrend, descending triangles form when there’s consistent buying around a support level. At this price point, some investors place high buy orders as the prices correct. This buying and selling activity forms a descending triangle. In this pattern, consecutive peaks will be lower than previous peaks.

In some situations, descending triangles may lead to a trend reversal if the fundamental outlook or sentiment improves.

This pattern breakdown and trend identification is useful in entry and exit signals.

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Applying continuation pattern concepts

The continuation pattern concepts can be applied to stocks like Anadarko Petroleum (APC), Apache Corp. (APA), ConocoPhillips (COP), and Chevron Corp. (CVX). All of these companies are part of the Energy Select Sector SPDR ETF (XLE).

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