Nestle has been trading in a range since April 2020.
In technical terms, this particular range formation is called descending triangle, this patterns generally forms in downtrend and acts as continuation pattern, but in this case the structure of the stock is of uptrend, this bearish pattern may act as reversal pattern, because it indicates distribution , so i need to be cautious, before creating any long positions in this stock.
Length of this pattern if of approx 4 months.
Steps to identify and trade the Descending Triangle pattern.
1. Look for Previous Trend.
2. Upper trend line should be sloping downwards -
Two touch points are required to draw a trend line.
Each successive high should be lower than the previous one,
If the successive high is higher than the previous one, pattern would be invalid.
There should be some distance between the two highs.
3. Lower trendline should be horizontal -
Two touch points are required to draw a horizontal line.
Lows do not have to be exact, however it should be with reasonable proximity.
There should be some distance between the two lows.
4. Volume
Volume contracts during triangle formation.
Volume expand during breakdown.
Volume does not always gives confirmation.
5. Pullback
Sometimes prices pullback after breakdown, but not always and when price pullbacks, same triangle support would then act as resistance.
6. Target
Calculate the widest distance of the triangle and replicate it to the breakout point to find the target of the pattern.
7. Length of this pattern
It Varies from several weeks to few months, average being 1-3 months.
In technical terms, this particular range formation is called descending triangle, this patterns generally forms in downtrend and acts as continuation pattern, but in this case the structure of the stock is of uptrend, this bearish pattern may act as reversal pattern, because it indicates distribution , so i need to be cautious, before creating any long positions in this stock.
Length of this pattern if of approx 4 months.
Steps to identify and trade the Descending Triangle pattern.
1. Look for Previous Trend.
2. Upper trend line should be sloping downwards -
Two touch points are required to draw a trend line.
Each successive high should be lower than the previous one,
If the successive high is higher than the previous one, pattern would be invalid.
There should be some distance between the two highs.
3. Lower trendline should be horizontal -
Two touch points are required to draw a horizontal line.
Lows do not have to be exact, however it should be with reasonable proximity.
There should be some distance between the two lows.
4. Volume
Volume contracts during triangle formation.
Volume expand during breakdown.
Volume does not always gives confirmation.
5. Pullback
Sometimes prices pullback after breakdown, but not always and when price pullbacks, same triangle support would then act as resistance.
6. Target
Calculate the widest distance of the triangle and replicate it to the breakout point to find the target of the pattern.
7. Length of this pattern
It Varies from several weeks to few months, average being 1-3 months.
