Descending Triangle: What Is It? Importance, How to Trade

Traders can combine price techniques, like the moving average, and chart patterns with technical indicators. In this strategy, traders use the descending triangle pattern to anticipate potential breakouts, and the moving average indicators trigger the signal to initiate a trade. Thereafter, the ascending triangle appears as the candlesticks start to consolidate. Traders can measure the distance from the start of the pattern, at the lowest point of the rising trendline to the flat support line. That same distance can be transposed later on, starting from the breakout point and ending at the potential take profit level. This measuring technique can be applied once the triangle forms, as traders anticipate the breakout.

How to Trade Bullish and Bearish Pennants: Full Guide & Tips

A descending triangle pattern will take around 28 days to establish and will not last for more than 90 days similar to an ascending triangle pattern. Descending Triangle patterns are most frequently used on daily charts and are typically interpreted over a few months. Strong triangular patterns, for instance, on a daily chart call for a prior trend that is at least a few months old and often develops for several months before a breakout takes place. Prices on the upper trendline continue to fall, resulting in a triangular formation that is getting smaller until the lower trendline’s level of support is broken. Traders should be on the lookout for a potential breakout through the support level as the price is consolidating with a bearish bias. A Descending Triangle is a bearish configuration that appears in both uptrends and downtrends.

In this case, the death cross served as a signal for the bears to look for a profitable short entry point. In addition, the intersection of the moving averages showed that the bulls’ strength had been exhausted and confirmed the descending triangle price chart pattern. Based on technical analysis, trading volume decreases during the descending triangle construction. The price continues bearish momentum following the breakout of the horizontal support line. At the same time, trading volumes grow significantly, returning the volatility and investor interest in the instrument.

The take profit is determined by the height of the descending triangle, the distance between the highest price and the support level. The principle of constructing a descending triangle in a bullish trend is the same as in a downward trend. The chart formation has a horizontal support and an inclined resistance level after the price turns down. This pattern emerges when volume declines and new stock price highs are limited. The trading period begins when the descending triangle reversal pattern is revealed ahead of the breakout. Traders often initiate a short position following a high volume breakdown from lower trend line support in a descending triangle chart pattern.

The descending triangle reversal pattern at the bottom of a downtrend is the exact opposite of a distribution event. The price action in this particular case stops moving forward at the end of a downward trend. Price action then eventually breaks out to the upside from the bottom of the descending triangle reversal pattern. You can trade long positions with this setup in contrast to the earlier method. Traders trade the pattern in anticipation of a probable upside breakout.

A regular descending triangle pattern is a continuation pattern that is generally considered as a bearish chart pattern with an established downtrend. A descending triangle pattern can also be bullish and have a breakout in the opposite direction; this is referred to as a descending reversal chart pattern. The pattern is also known as a right-angle triangle because of its shape. Subsequently, price action eventually breaks to the upside from the descending triangle reversal pattern at bottom. Unlike the strategy mentioned previously, in this set up, you can trade long positions. It is important to note that in this trading strategy we use the descending triangle pattern to anticipate potential breakouts.

1. They keep putting pressure on that resistance level and as a result, a breakout is bound to happen.
2. Descending triangles indicate to investors and traders that sellers are more aggressive than buyers as the price continues to make lower highs.
3. After a descending triangle pattern, if the price breaks below the support line, it often leads to a continuation of the downtrend.
4. After a brief consolidation, price falls lower before breaking out from the pattern.
5. Traders typically wait for a confirmed breakout from the triangle formation’s boundaries before entering a trade.
6. An ascending triangle pattern signals that buyers are gaining control.

How to Trade with a Descending Triangle Pattern in the Stock Market?

A descending wedge is a bullish formation followed by an upside breakout. A descending triangle is a bearish pattern of continuation of a downward trend, and the price breaks it out downside. A wedge is a narrowing downward price channel in which the lines do not join together, unlike a descending triangle.

Is a Descending Triangle Bullish or Bearish?

1. As the name suggests, the descending triangle pattern breakout strategy is very simple.
2. The pattern serves as confirmation for a trading strategy or as a signal for traders to enter or exit a trade.
3. They often watch for a move below the lower support trend line, suggesting that downward momentum is building and a breakdown is imminent.
4. Next, you enter a short trade and set a stop loss around the most recent high within the pattern.
5. Based on technical analysis, trading volume decreases during the descending triangle construction.

Along those lines, the moving average indicators serve the purpose of triggering the signal to initiate a trade. An ascending triangle is a bullish triangle pattern that’s often looked for when analysing potential price breakouts. It usually forms during an uptrend but may also appear in a downtrend. It suggests that buyers are becoming more aggressive, while sellers are struggling to push the price lower, creating a situation where the market might break descending triangle chart pattern upwards. Price tends to move within a narrow trading range and the descending pattern forms during this phase.

In this context, the triangle serves as a reversal pattern that warns traders that the trend will soon change to bearish. They often form during an existing downtrend and signal that bears are regaining control as they continue to push prices lower. Eventually, the wedge will narrow, and sellers will anticipate a breakout below the horizontal support line.

Upthrusts: catching falling knives

One of the patterns signaling a trend beginning is a descending triangle formation covered in this article. Read on, and you will learn how to identify descending triangles in the chart and trade them to make profits. You can spot the descending triangle reversal pattern at the peak of a rally. This pattern starts to take shape as volume decreases and the stock fails to reach new highs. A horizontal price support level forms at the same time following the price action. Triangle chart patterns are popular tools among those looking to analyse market movements and potential breakouts.

Ready to trade your edge?

Descending triangle patterns offer many advantages, such as being easily identifiable and produces a clear target level, which is based on the maximum height of the triangle. However, one major disadvantage of using descending triangles is that there is always the potential for a false breakdown, which is where the down trend reverses pattern. Technical traders have the opportunity to make substantial profits over a brief period. They often watch for a move below the lower support trend line, suggesting that downward momentum is building and a breakdown is imminent. Traders often enter into short positions to further lower the asset’s price.