Descending Triangle: What It Is, What It Indicates, Examples

In case the price action returns within a triangle, the pattern is invalidated, and the stop loss is triggered. When the price breakout is above the 200-day simple moving average, the busted triangle sees a price increase of 13% versus those below the 200-day simple moving average. 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. 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. The resulting bounce off the support level leads to a lower high.

• Ensure you get familiar with the descending triangle pattern before you commit any real money with this chart pattern.
• The pattern usually forms at the end of a downtrend but can also occur as a consolidation in an uptrend.
• We research technical analysis patterns so you know exactly what works well for your favorite markets.
• You can resolve this confusion by switching to Heikin Ashi charts.
• Breakouts indicate the potential for the price to start trending in the breakout direction.

The chart example above shows a descending triangle with an upper angled resistance line and a lower horizontal support line. Technical analysts will use these two trendlines to better visualise the pattern. The angled resistance line was drawn by simply connecting the lower highs (labelled LH) of the candlesticks as price contracted into a narrower range. Studying chart patterns is an important part of technical analysis that traders use to forecast probable price direction by simply knowing the type of pattern they are dealing with. On the other hand, the descending triangle can sometimes result in a failed breakout.

Descending Triangles vs. Ascending Triangles

To determine which way the price will go, traders should watch how the stock responds when it reaches support and breaks out above or below the triangle. The descending triangle is most commonly played as a bearish strategy because of its common occurrence in a bear market. Traders can wait for the price to reach support, then initiate short positions on the break below the triangle. If, however, price action is bullish when it reaches support and breaks out above the triangle, traders might consider initiating long positions instead. Descending triangle patterns are 87% accurate as an uptrend continuation pattern in a bull market. The accuracy changes if in a bear market and if the pattern acts as a continuation or a reversal pattern.

Try to avoid taking a position if the breakout occurs before the 2/3 of the pattern. Over half the time, when a breakout does occur from the bottom, the exit will be made by the top. You can open a live trading account at FXOpen to examine how triangle patterns work. Chris Douthit, MBA, CSPO, is a former professional trader for Goldman Sachs and the founder of OptionStrategiesInsider.com. His work, market predictions, and options strategies approach has been featured on NASDAQ, Seeking Alpha, Marketplace, and Hackernoon. Mean Reversion Definition Reversion to the mean, or “mean reversion,” is just another way of describing a move in stock prices back to an average.

Examples of the Descending Triangle Pattern

From beginners to experts, all traders need to know a wide range of technical terms. Trade up today – join thousands of traders who choose a mobile-first broker. Also note that using small periods (less than 10) could make your moving averages more sensitive to noise. The same concept of measuring the distance from the support to the first high is used to determine targets. This is then projected to the upside for the minimum price objective.

• Traders who follow technical patterns will in most cases include indicators to assist them with their trading decisions.
• A stop-loss order could be half of the take-profit size or be placed above the upper band of the triangle (3).
• A descending triangle appears after a bearish trend with a probable breakdown continuation.
• However, at times – as we’ll explain later – descending triangles can express a bullish signal in the form of a reversal pattern.

The time frame of the chart is irrelevant as you can use this strategy across any time period. Once you have identified a stock and the time frame, wait for price action to contract. A breakout refers to price movement above a resistance area or below a support area. Breakouts indicate the potential for the price to start trending in the breakout direction.

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If a breakdown doesn’t occur, the stock could rebound to re-test the upper trend line resistance before making another move lower to re-test lower trend line support levels. The more often that the price touches the support and resistance levels, the more reliable the chart pattern. The descending triangle is a bearish chart formation that occurs during consolidation within a bigger downtrend move. The price action usually consolidates near lows and is characterized by a series of lower highs and horizontal lows. Descending triangles are the opposite of ascending triangles as they have a horizontal upper trendline and a rising lower one.

Instead, sellers are willing to sell at even lower prices (that’s why you get a series of lower highs). It should be noted that this pattern does not guarantee a reversal in direction. With that being said, it was possible to re-enter again soon after the first short position was stopped out (see image below). False breaks will give no indication on the true side of the exit. The material provided is for information purposes only and should not be considered as investment advice.

How to identify a Descending Triangle classical pattern?

In this case, traders typically sell the security short and place a stop-loss slightly above the highest price reached during the formation phase. So this is a continuation pattern but may also be a reversal pattern symbolizing a buying accumulation zone. Bullish movements are also more important than downward movements. 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. Since price is consolidating with a bearish bias, traders need to watch out for impending breakout down through the support level. Once you identify the lower volume, simply measure the distance from the first high and low.

While descending triangles are typically bearish, these bullish triggers are always a possibility. Therefore, it should never be assumed a stock’s price will continue to fall just because a descending triangle has formed. Be sure to wait for a breakout before entering a position, long or short. Descending triangles assume that momentum will drive a stock price lower when it breaks this milestone level. Once the filter has been applied, traders can then view the results on a chart interface. Depending on the complexity of their search criteria, several stocks may meet the criteria and appear to have potential descending triangle patterns.

A descending triangle is a bearish chart pattern that is used in a downtrend market and is formed by a series of lower highs and a lower resistance level. 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.

We want the everyday person to get the kind of training in the stock market we would have wanted when we started out. Our watch lists and alert signals are great for your trading education and learning experience. Bitcoin local targets to $27,510 short scalp (#nfa)
broken from descending triangle, I see targets to about 27,510 for a scalp short.

Volume bars serve an additional purpose to alert you to a potential bullish breakout. Yes, we work hard every day to teach day trading, swing trading, options futures, scalping, and all that fun trading stuff. But we also like to teach you what’s beneath the Foundation of the stock what is a descending triangle market. The upper descending trend line needs at least 2 highs to form the line. These highs need to be lower than the previous highs with some distance between them. If the most recent high is the same or higher than the previous high, the descending triangle is no longer valid.

Traders should be aware that this pattern may provide false signals, as it does not guarantee that the trend will continue, and prices could reverse at any time. After identifying the triangle, look for a trend reversal or continuation confirmation by watching for a breakout either up or down out of the triangle. If the security price breaks out above the triangle resistance, especially with volume increases, it signals a potential 87% chance of going higher. The lower support line was drawn by connecting the lows of the candlesticks, creating a horizontal line.