Descending Triangle Pattern: What is it and How Does it Work in Trading?

Placing market or limit orders creates momentum down to the target price. The selling pressure becomes so strong that the price continues to decline, collecting liquidity below. It is one of the chart patterns that are easy to recognise and consists of only two trendlines. A regular descending triangle pattern is commonly considered a bearish chart pattern or a continuation pattern with an established downtrend. However, a descending triangle pattern can also be bullish, with a breakout in the opposite direction, and is known as a reversal pattern. Apple Inc. (AAPL) had a descending triangle pattern in late September 2020.

1. That is how the pattern resembles a triangle and suggests that the price is likely to fall lower once the sellers’ pressure breaks through the support level.
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4. They frequently search for confirmation signs that support the bearish breakout signal in order to reduce the possibility of fake breakouts.
5. Nonetheless, a noteworthy spike in volume following a breakout might function as a robust affirmation of the pattern’s completion and the possibility of further declines.

The falling wedge is a technical indicator that signals bullish what is a descending triangle market reversals. It is a Descending Triangle Pattern that has both trendlines falling in the downward direction. The first trendline is formed by connecting the lower highs, and the second is formed by connecting the lower lows. It is a bullish pattern and indicates a significant currency pair price increase when the current price breaks above the higher trendline.

1. The descending triangle has a built-in measurement method that is used to analyze the pattern to determine possible take-profit levels.
2. The stop-loss order is an essential component of this strategy, as it allows traders to limit their losses if the price moves in the opposite direction.
3. The endpoint will be the potential take profit level for the trade entered according to the descending triangle pattern.
4. And finally, a rising lower trendline and a horizontal upper trendline define ascending triangles as bullish chart patterns.
5. The entry signal will come in the form of a breakout below the horizontal support line.
6. The descending triangle reversal pattern at the bottom of a downtrend is the exact opposite of a distribution event.

A breakdown generally appears when the volume is high and the move that follows is fast. Descending triangle patterns are a commonly used technical analysis tool used by traders to identify potential trend reversals. These patterns are formed by a series of lower highs that connect with a horizontal support line. Understanding the characteristics of a descending triangle pattern is essential for traders to identify false breakouts and make informed trading decisions. In this section, we will provide a comprehensive guide to understanding the descending triangle pattern.

This strategy anticipates a breakout from the descending triangle pattern and uses a combination of trading volumes and asserting the trend to capture short-term profits. When a stock is in a downtrend or a consolidation phase, traders watch for lower highs and lower lows being formed. From a technical analysis perspective, the descending triangle indicates that sellers are in control and that the price is likely to continue to decline. This pattern is often a sign of a breakout to the downside, as the bears push the price lower after the consolidation period. However, it is important to note that not all descending triangles result in a bearish breakout. In some cases, the price may break out to the upside, indicating a bullish reversal.

The triangle group of patterns includes descending, ascending, and symmetrical triangles. The psychology behind the pattern is that sellers try to pull the price down but fail due to a strong support level, so the price rebounds. That is, the price bounces back and forth within a triangle between the two trendlines. The idea is that sellers’ strength allows them to pull the price below the support level despite the short-term consolidation. Typically, the breakout from a descending triangle is triggered to the downside. This measured distance is then projected to the downside where the target price can be set.

Descending Triangle Reversal Pattern in an Uptrend

The chart formation has a horizontal support and an inclined resistance level after the price turns down. 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.

When the level of support is broken, it becomes a level of resistance, confirming the overall downward trend of the asset’s price over time. The above image describes perfect conditions for the Descending Triangle formation. However, it’s a rare occasion to find a perfect triangle, so in most, cases both trend line and resistance line will be pierced by false breakouts. Duration – The duration of a descending triangle pattern is essential to identify the strength of the trend.

Expanding Wedge – profitable Forex pattern

This weak support will eventually fall under the pressure of selling, potentially resulting in a price decrease. The Relative Strength Index (RSI) is valuable in confirming the strength of a breakout from a descending triangle pattern. An RSI value below 50 during the pattern’s formation and subsequent breakout indicates strong bearish momentum. A downward crossover of the RSI through the 50 level would indicate the pressure is shifting to the downside and that a bearish breakdown may be beginning. When the pattern’s breakout occurs, it’s usually indicative of a bearish move. The breakout’s direction and price projection, determined by the widest distance of the pattern subtracted from the resistance breakout, can serve as a crucial guideline.

Falling Wedge Pattern

One of the key ways in which moving averages can be used to analyze a descending triangle pattern is by identifying potential support and resistance levels. These levels can be used to determine when a price may break out of the pattern and begin to trend downwards. Additionally, moving averages can be used to identify potential entry and exit points for trades, based on the direction of the trend. In summary, the descending triangle pattern is a powerful tool used by traders to predict future price movements of an asset.

The pattern usually forms at the end of a downtrend but can also occur as a consolidation in an uptrend. A regular descending triangle pattern is commonly considered a bearish chart pattern with an established downtrend. A descending triangle pattern, however, may be bullish, with a breakout in the opposite direction, known as a reversal pattern. Fibonacci Retracement – Fibonacci retracements are another popular technical analysis tool that can be used to identify key levels of support and resistance.

When a descending triangle pattern completes in the price chart, the bears break out the lower border of the pattern, and the price continues declining. A descending triangle is a technical chart pattern formed by a series of lower highs and a flat, lower trendline that acts as support. The pattern can provide false breakouts, sideways movement of prices and price does not break out in the direction predicted. These 4 key features are an ongoing downtrend, a descending upper trendline, a horizontal lower trendline, and a continuation of the downtrend after the breakout.

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 pattern indicates a conflict between sellers and buyers, with the former applying increasing pressure while the latter maintains a steady level of purchasing support. To put it into a practical example, let’s say a stock is trading between $50 (support) and $60 (resistance), but with each bounce off resistance, the highs get lower—$58, $55, $52, etc. So, while the falling wedge signals a possible reversal to the upside, the descending triangle is often a setup for further downward movement. On the other hand, the descending triangle is biased towards a bearish breakout.

Ascending Triangle

By understanding the behavior of traders and the strength of the pattern, traders can make more informed decisions about when to enter or exit a trade. When it comes to identifying and confirming descending triangle patterns, volume can play a crucial role. It can provide valuable insights into the behavior of traders and the strength of the pattern. In this case study, we will explore how volume can be used to confirm a descending triangle pattern. Support Level – The support level is the horizontal line that connects the swing lows of the pattern.