A bearish chart pattern that is characterized by a descending upper trendline and a second, flatter horizontal trendline
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A descending triangle refers to a bearish chart pattern used in technical analysis that is characterized by a descending upper trendline and a second, flatter horizontal trendline, which is lower than the first.
Chart Patterns: The Basics Behind Descending Triangles
Descending triangles, along with terms such as ascending triangles, head-and-shoulders, flag, pennant, and cup-and-handle are all examples of chart patterns, of which there are over 50 types according to noted investor Thomas Bulkowski’s book, “Encyclopedia of Chart Patterns.”
So, what exactly are chart patterns? Chart patterns are frequently used in technical analysis, which is an analysis methodology for securities and helps in the identification of trading opportunities by charting the price trends of past market data. Chart patterns are used specifically by traders and investors to find significant patterns in the prices of publicly traded assets such as stocks or bonds.
Patterns exist in every market throughout every time period and are heavily scrutinized because patterns in certain markets often show a high positive expectancy rate or have predictive value. As such, many investors and traders know that being able to identify patterns and the psychology behind a particular pattern is crucial to taking advantage of the pattern.
Features of Descending Triangles
Descending triangles are composed of two trendlines – one descending trendline and one horizontal trendline. An easy way of visualizing descending triangles without an actual image can be done via the phrase “flat bottoms, falling tops.”
Descending triangles indicate to investors and traders that sellers are more aggressive than buyers as the price continues to make lower highs. It is a very popular chart pattern because it clearly shows that the demand for an asset or commodity is weakening. The pattern completes itself when the price breaks out of the triangle in the direction of the overall trend, usually below the lower support, which indicates that the downside momentum in place is likely to continue or become stronger, making a breakdown imminent.
Once the breakdown occurs, technical traders are able to aggressively push the price of the asset even lower and make significant profits over a brief period.
How to Identify a Descending Triangle
Descending triangles come with several notable features that can be used by traders and investors to easily identify them. The features usually apply to both financial markets and foreign exchange markets.
Downtrend: The market in question must be in an existing downtrend before the descending triangle pattern appears.
Consolidation Phase: The descending triangle appears when the market is entering the consolidation phase.
Descending Upper Trendline: Building on the second point, a downward sloping trendline can be drawn by connecting the upper points and indicates that the sellers are gradually pulling prices down.
Horizontal Lower Trendline: The lower horizontal trendline primarily acts as a support, and prices often approach the level until the breakout occurs.
Continued Downward Trend: It occurs after the breakout below the lower trendline.
Advantages and Disadvantages of the Descending Triangle
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.
Also, there is always the possibility that prices move sideways or higher for lengthy periods of time, acting contrary to the usual features of descending triangles. In some situations, trend lines may need to be redrawn as the prices break out in the opposite direction than the one that was expected.
Additional Resources
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What is a Descending Triangle? A descending triangle refers to a bearish chart pattern
chart pattern
A chart pattern or price pattern is a pattern within a chart when prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis.
used in technical analysis that is characterized by a descending upper trendline and a second, flatter horizontal trendline, which is lower than the first.
A regular descending triangle pattern is commonly considered a bearish chart pattern or a continuation pattern with a downtrend. But sometimes Descending Triangle can be bullish without a breakout in the opposite direction known as reversal pattern. A descending triangle signals traders to take short position.
Traders often initiate a short position following a high volume breakdown from lower trend line support in a descending triangle chart pattern. In general, the price target for the chart pattern is equal to the entry price minus the vertical height between the two trend lines at the time of the breakdown.
The descending triangle is a notable technical analysis pattern that indicates a bearish market. It forms during a downtrend as a continuation pattern, characterized by a horizontal line at the bottom formed by comparable lows and a descending trend line at the top formed by declining peaks.
A strong downward trend follows, finishing this bearish pattern. The psychology behind the descending triangle pattern is simple: sellers place ask orders for lower prices as the range narrows. After the breakout, more sellers enter, pushing the price further down.
The descending triangle pattern breakout strategy is all about predicting when a stock will break out of a descending triangle pattern. You have to start with choosing a stock that has been in a downtrend. Here, you have to look for lower highs and lower lows getting formed.
A descending triangle pattern is a bearish continuation pattern with horizontal support and descending resistance levels. In contrast, a falling wedge pattern is a bullish reversal pattern that has a downward-sloping support level and a downward-sloping resistance level that converges toward each other.
The profit target for an ascending triangle breakout is typically equal to the price difference at the widest part of the triangle. Take the difference between the resistance line and lowest low, and add that to the resistance line at the breakout.
A descending triangle signals traders to take a short position to accelerate a breakdown. A descending triangle is detectable by trend lines drawn for the highs and lows on a chart. A descending triangle is the counterpart of an ascending triangle, another trend line-based chart pattern used by technical analysts.
Traders use triangles to highlight when the narrowing of a stock or security's trading range after a downtrend or uptrend occurs. There are three potential triangle variations that can develop as price action carves out a holding pattern, namely ascending, descending, and symmetrical triangles.
A bear flag pattern is the inverse of a bull flag pattern. On a candlestick chart, it looks like a downtrend with increasing volume, followed by a short upward consolidation with decreasing volume, until the downtrend resumes.
The descending broadening wedge is measured to be a reversal pattern and is bullish. Although the pattern is typically a reversal signal, a continuation of the downtrend is still possible.
Volume normally expands at the start of the triangle or wedge, contracts as the pattern develops and then expands on the breakout. Ascending triangles (and falling wedges) should exhibit higher volume on the up-swings. Descending triangles (and rising wedges) exhibit higher volume on the down-swings.
A descending triangle pattern is generally seen as 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.
An ascending triangle is a continuation pattern marking a trend with a specific entry point, profit target, and stop loss level. The resistance line intersects the breakout line, pointing out the entry point. The ascending triangle is a bullish trading pattern.
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