To calculate the minimum price objective, calculate the "height" of the formation at its widest part – the "base" of the triangle. The height is equally determined by projecting a vertical line from the first point of contact with the trendline on the left of the chart to the next point of contact with the opposite trendline. In other words, measure from the highest high point on one trendline to the lowest low point on the opposite trendline. Both these points will be located on the far left of the formation. Next, locate the "apex" of the triangle (the point where the trendlines converge). Take the result of the measurement of the height of the triangle and add it to the price marked by the apex of the triangle if an upside breakout occurs and subtract it from the apex price if the triangle experiences a downside breakout.
For example, working with a descending triangle , in case of IDFC highest high is 140 and the lowest low occurs at 188. The height of the pattern is (140 – 88 = 56). The apex of the descending triangle also occurs at 140. The pattern experiences a downside breakout. This means the pattern has a target price of 36 (88 – 56 = 120).
Traders and Investory Psycology – With its "flat-bottomed" shape, the descending triangle indicates that sellers are more aggressive than buyers. The pattern typically emerges when buyers feel that the stock is overvalued and decide that the fair value is at a specific lower level. These buyers are prepared to purchase the stock if it hits that specific price level. The floor does not hold because demand wanes – possibly buyers have run out of money or interest in the stock. Once the downside breakout occurs, the stock price continues to fall.