Descending-Triangle Technical Formation

A descending-triangle develops when a downward slanting line can be drawn through two or more succeeding price peaks and a horizontal line can be drawn through the bottom of two or more intervening price dips (See the chart of Philip Morris, NYSE: MO). A descending triangle can develop in several weeks or several months. At some point before reaching the apex of the triangle, the price will usually break down through the floor of the triangle. When the stock does this and closes below the bottom line, a sell signal is given. This penetration will often be accompanied by an increase in sales volume. If the price does not make a definite penetration of the bottom line as in, but instead goes out through the apex as in, the formation loses its significance. The sales volume tends to diminish as the price works its way into the triangle. Once the price has broken down through the floor of the triangle, the sales volume usually increases specialty if the descent is steep. Picture a descending triangle as an unequal struggle between sellers who are becoming increasingly fearful, and buyers who feel that the shares are a bargain at a particular price level. As it turns out, the buyers prove to be overly optimistic and the sellers' fears are confirmed when the price breaks through the floor of the triangle.