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Descending Triangle Patterns

Descending Triangle Pattern on #HPQ

Descending Triangle Pattern on #HPQ

Descending Triangle Pattern on #HPQ is a classical chart pattern, located at the end of a pullback. Therefore, it has bearish implications.

The premise

This is the third descending triangle pattern that I trade this year. After the Descending Triangle on USDJPY and Descending Triangle Pattern on EURPLN. Therefore, let’s take a look at the #HPQ (HP Inc) daily chart. We’ll see hat we have a descending channel at the left part of the chart. A deeper correction after the breakout of the descending channel. And a 50% drop with the subsequent pullback. So, at the end of this pullback we have our today’s descending triangle pattern.

descending-triangle-pattern-on-hpq-detail
Descending Triangle Pattern on #HPQ daily chart detail

How did I trade the descending triangle pattern on #HPQ?

I simply placed a sell stop order slightly below the support of the pattern. And I considered support the May 5th, 2020 daily candle low. Consequently, my order is open on May 13th, 2020.

The outcome

Let’s take a look now at what happened after the breakout. The breakout candle was a very nice one. But, the problem appeared after the price went up the next day in a very strong manner. I know, that a retest of the support can appear. But, this is why I decided to lower my stop slightly above this strong bull candle. And that’s because I don’t want to be in this trade if the price goes back into the pattern. Consequently, my stop loss order was hit when the price went even higher in the second day after the breakout. So now, you can take a look at what happened after the price returned into the pattern: in the third day after the breakout, the price opened with a very huge gap.

the-outcome-of-the-descending-triangle-pattern-on-hpq
The outcome of the Descending Triangle Pattern on #HPQ daily chart

So, lowering my stop did two things:

  1. Reduced my initial risk in half;
  2. Protected my capital for a higher loss than my initial risk.

The importance of an active trade management

While the first point is easy to understand, I feel that the second point need a detailed explanation. So, I want to mention that my initial stop would’ve been hit in the second day anyway, but with a loss of my entire initial risk. Now, just for the sake of the example, let’s imagine that my stop would not have been touched in the second day. The difference was small anyway, only 0,06$ between my stop and the high of the second day. But, the most important thing to keep in mind here is that if I hadn’t lowered my stop order, then, a higher loss than my initial risk could have happened. And that’s because my initial stop loss was at 14.83$. The high of the second day after the breakout was 14.90$. And, the most important, the third day after the breakout opened at 15.69$.

The conclusion of the Descending Triangle Pattern on #HPQ

From my point of view, there are two things that I need to mention here. The first is that, even if I placed my initial stop at 14.83$, the stop would’ve been executed at the opening price of the third day because 15.69$ was the first available price. And the second one is that this is the perfect example of a pattern which simply fails. And this is why it’s important to use stops and an active trade management. Protection of the trading capital is the most important thing for a trader.

One more thing

The last thing, for now, is that I would really appreciate if you could show your support for my work and follow Capital Patterns on Twitter and Facebook. Or even subscribe to my newsletter. It would be really motivational and it would also mean a lot to me. Thank you!

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