Descending Triangle Pattern: How to Identify and Trade It

Notice that the double bottom is below resistance (blue line), which could be a key to the failure (meaning the stock has to push through overhead resistance). Those that I thought would work properly didn’t, while others that I thought were destined to fail, worked. Descending triangles are used for technical analysis of financial markets and not fundamental analysis. There is no need to make use of volumes when trading with this strategy. Also note that you will not always see a bullish signal from the EMA’s prior to the breakout.

Descending Triangle Pattern Breakout Strategy

The descending triangle pattern at the bottom is a mirror image of the bearish form of the pattern. Therefore, the entry point, take profit, and stop loss levels can only be measured in the opposite direction. Next, you see that the price fluctuates, narrowing the range of asset accumulation. That is, the lows remained in the area of the support line, and the highs decreased and formed a sloping trend line.

Prudent technicians combine descending triangle signals with other indicators like oscillators to gauge momentum trends. Candlestick analysis also helps assess seller pressure building up within the formation. Proper risk management techniques, including stop losses and position sizing, remain critical when acting on triangle breakdowns. Technicians can start by examining the structure of the pattern itself. The descending triangle forms through a flat support line along the bottom and a descending resistance line converging downwards. This shape reflects decreasing bullish momentum that may lead to an eventual bearish breakdown.

Descending Triangle Pattern Failure Causes

1. A descending triangle pattern is identified by a series of lower highs that form a downward-sloping resistance line and a relatively flat support line at the bottom.
2. So it is represented by the highest point, all the way to the flat support line.
3. Traders can monitor alerts that notify them of changes in direction, for example, potentially revealing a new top or bottom.
4. Buyers and sellers are evenly matched, causing the price to move within a narrowing range.

When the stock breaks out of the descending triangle, the support (lower horizontal trend line) becomes resistance; trend lines turn into key support and resistance areas. The stock will most likely go back up to test that resistance level before continuing its move down. Always remember that patterns can break down and reverse at any time. Use proper risk management techniques when trading a descending triangle pattern. A descending triangle pattern trading strategy is to scan the U.S. equities market for stocks trending -10% or lower. Enter a short trade when the market price drops below the pattern support line on increased selling volume (red bars).

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In the next section of this article, we illustrate five descending triangle trading strategies that can be used. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. Among the upward breakouts, the most desirable to find are those that happen after a gap.

What Is Descending Triangle Breakout?

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. While triangles provide a useful framework, they’re usually combined with other technical indicators for confirmation. Traders often align triangles with volumes, moving averages, or momentum indicators to assess whether the breakout has strong support behind it. For instance, a breakout confirmed by high volume or a moving average crossover might add confluence to the trade.

1. By incorporating these tips into their trading plan, traders can potentially improve their chances of success when trading with ascending and descending triangles.
2. The same charting pattern used one day can produce completely different subsequent price movements compared to using the pattern on another day.
3. Most traders would likely combine information gleaned from a descending triangle pattern with other analysis tools.
4. I present the information in slider format, so be sure to click the left or right arrows to view another slide.
5. Next, you enter a short trade and set a stop loss around the most recent high within the pattern.

Traders typically use the descending triangle to identify potential breakdowns below the support level. When the price falls and closes below this line, it’s considered confirmation that the sellers have taken over and that further downside movement could follow. A symmetrical triangle pattern indicates a period of indecision in the market.

Identifying a downward triangle formation can help traders make more informed decisions by providing signals about future price movements. Like all other technical analysis tools, however, a descending triangle pattern is susceptible to false signals. The key difference between these two patterns lies in their shape, breakout direction, and implications. Traders use these patterns, along with other technical indicators, to make informed decisions about their trading strategies.

It is this configuration formed by higher lows that forms the triangle and gives it a bullish characterization. The basic interpretation is that the pattern reveals that each time sellers attempt to push prices lower, they are increasingly less successful. After a descending triangle pattern, if the price breaks below the support line, it often leads to a continuation of the downtrend. The breakdown usually comes with increased selling pressure and volume, confirming the bearish sentiment. However, it’s essential to watch for potential false breakouts and ensure the breakdown is sustained. The descending triangle is one of the most common technical analysis tools that can be spotted on price charts of any asset.

Buyers and sellers are evenly matched, causing the price to move within a narrowing range. As it gets smaller, the pressure builds, and the price is likely to break out either up or down. Since the formation is neutral, the breakout could occur in either direction, and traders descending triangle stock wait for this moment to see where the market is heading. Ascending triangles typically indicate a bullish trend, while descending triangles suggest a bearish trend. However, these patterns are not always reliable, and can sometimes lead to false signals.

Often, the descending triangle pattern occurs at a high in a bullish trend. From a psychological point of view, a descending triangle in the zone of high prices shows that the trend has reached its peak, and traders have started to close positions, taking profits. In this context, the triangle serves as a reversal pattern that warns traders that the trend will soon change to bearish. Based on technical analysis, trading volume decreases during the descending triangle construction.

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. Triangle chart patterns are a common tool used to understand price movements in the market. These patterns form when the price of an asset moves within two converging trendlines, creating a triangle shape on a chart. The lines represent support and resistance levels, and as they get closer together, it signals a potential breakout in one direction.