Descending triangle pattern and trading chart
What is a descending triangle?
A descending triangle is a bearish technical chart pattern formed by a series of lower highs and a flat, lower trendline that acts as support.
It is one of the chart patterns that are easy to recognise and consists of only two trendlines. Some traders will use the pattern on its own to generate an entry signal (i.e., the breakout), while others will use technical indicators for further confirmation (e.g., momentum indicator).
Is a descending triangle bullish or bearish?
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.
Descending triangles are considered to be continuation patterns, meaning the price is expected to continue in the direction of the prevailing trend after the breakout occurs.
How to identify a descending triangle pattern
A descending triangle consists of:
- A descending trendline (resistance): As the price moves lower and posts lower highs, it will create a falling trendline
- A horizontal trendline (support): This line represents a key level of support
The descending triangle will generally appear during downtrends. The triangle signals a period of consolidation. However, as bears regain control, the wedge will narrow and the breakout below the horizontal trendline will signal a continuation of the downtrend.
How to trade a descending triangle pattern
Firstly, identify the descending triangle on the price chart. The pattern should be clearly defined, with a trendline connecting the lower highs and a horizontal support line. Ideally, there should be at least two or more touches on the falling trendline and the horizontal trendline.
Descending triangle patterns are continuation patterns. Ensure that the instrument you want to trade is in an existing downtrend.
The entry signal will come in the form of a breakout below the horizontal support line. While some traders enter as soon as the price breaches this level, others will wait for additional confirmation or use indicators to filter signals.
Traders will generally place a stop-loss order just above the descending trendline, while the take-profit level will be based on the height of the triangle pattern.
Advantages of descending triangles
- Easy to recognise: Descending triangles are easy to spot, even for less experienced traders.
- Simple to define entry/exit points: The entry signal is clear, with traders anticipating a breakout below the horizontal trendline. This makes it easier to define the stop-loss and take-profit levels.
- Continuation pattern: Descending triangles are generally bearish patterns, which means traders will be looking for a continuation of an existing uptrend.
- Different timeframes: Descending triangles appear on all possible timeframes, from minutes charts to monthly charts, providing opportunities for both short and long-term traders.
- Compatibility with other tools: Since this is a simple chart pattern, it can easily be used with other indicators for additional confirmation.
Disadvantages of descending triangles
- False breakout: As with any other chart pattern, descending triangles can produce false signals in the form of a false breakout. A breakout might initially appear as valid, but the price could quickly reverse, triggering a stop-loss level or forcing them to liquidate their position early.
- Number of signals: Short-term charts can see a larger number of descending triangles appear, with a worse quality of signals.
- Lack of trend: An instrument should be trending rather than consolidating.
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FAQ
What is a descending triangle pattern?
A descending triangle is a technical chart pattern formed by a series of lower highs and a flat, lower trendline that acts as support.
How is a descending triangle different from an ascending triangle?
A descending triangle is a bearish pattern. It slopes downward and typically forms in a downtrend. An ascending triangle is a bullish pattern. It slopes upward and generally forms an uptrend.
What does a descending triangle pattern indicate?
It indicates that selling pressure is increasing and that sellers are regaining control after a period of consolidation.
How do traders use the descending triangle pattern for trading?
Traders use the breakout below the horizontal support line as an entry signal to sell (short) the instrument.
What should traders watch for when trading a descending triangle?
False breakouts can occur, so traders should first verify that the instrument is currently in a downtrend. They can also try to validate the signals by using indicators such as momentum indicators.
Can the price break out in the opposite direction in a descending triangle?
A price can break out above the descending trendline. However, this is seen as a less reliable signal and is not commonly used as an entry signal.
Can descending triangles occur in different time frames?
Yes, descending triangles appear in various timeframes, from minutes to weekly charts.
