Descending Triangle

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Descending Triangle

A descending triangle is a common technical analysis chart pattern that typically signals bearish continuation but can occasionally precede a bullish reversal. It is defined by a series of lower highs forming a descending upper trendline and a relatively flat horizontal lower trendline that marks support.

Key takeaways

  • Usually a bearish continuation pattern: signals weakening demand and a likely breakdown below support.
  • Pattern features: descending upper trendline (lower highs) + horizontal lower trendline (support).
  • Typical trade: short on a high‑volume breakdown below support; alternatively, trade a confirmed upside breakout.
  • Use volume, trend context, and other indicators to reduce false signals.
  • Price target is commonly projected by subtracting the triangle’s vertical height from the breakdown price (or adding it to an upside breakout).

How to identify a descending triangle

Look for:
* A prior downtrend or consolidation phase.
* Multiple lower highs that can be connected by a descending trendline.
* A horizontal support line touched several times by price lows.
* Generally shrinking volume during formation, followed by increased volume on the breakout or breakdown.

What the pattern signals

  • Bearish interpretation: Sellers repeatedly push lower highs while buyers defend a support level; a break below that support usually indicates renewed downward momentum.
  • Bullish possibility: If price breaks above the descending trendline with conviction and volume, the pattern can produce an upside breakout and a trend change.

Trading strategies

Common approaches include:

  1. Short on breakdown
  2. Entry: after a decisive close below horizontal support with above‑average volume.
  3. Stop‑loss: above the nearest resistance — often the descending trendline or recent high.

  4. Price target: breakdown price minus the triangle’s maximum vertical height.

  5. Buy on upside breakout

  6. Entry: confirmation of a close above the descending trendline with volume expansion.
  7. Stop‑loss: below breakout level or recent support.

  8. Target: breakout price plus the triangle’s vertical height.

  9. Confirmations and filters

  10. Require increased volume on the breakout/breakdown.
  11. Use moving averages, momentum indicators, or Heikin‑Ashi candles to confirm trend direction.

  12. Consider waiting for a retest of the broken level (support becomes resistance on a breakdown) before entering.

  13. Reversal contexts

  14. Top reversal: descending triangle forming after an uptrend can signal a shift to bearish sentiment.
  15. Bottom reversal: if the pattern forms at the end of a downtrend and breaks upward, it can mark a bullish reversal.

Comparing patterns

  • Descending vs. ascending triangle
  • Descending: horizontal support + descending resistance (bearish bias).
  • Ascending: horizontal resistance + rising support (bullish bias).
  • Descending triangle vs. falling wedge
  • Falling wedge: converging trendlines with both sloping down; typically a bullish reversal.
  • Descending triangle: horizontal support with a descending upper line; typically bearish continuation.

Limitations and risks

  • Not foolproof: false breakouts or breakdowns occur.
  • Subjectivity: drawing trendlines and determining pattern boundaries can vary between traders.
  • Volume and the number of touches matter: the more times price tests levels, the more reliable the pattern tends to be.
  • Always confirm with additional indicators or price action (e.g., volume spike, retest) before committing capital.

Practical checklist before trading a descending triangle

  • Confirm pattern structure: at least two lower highs and two touches of horizontal support.
  • Check trend context: is this a continuation or potential reversal?
  • Look for declining volume during formation and rising volume on breakout/breakdown.
  • Define entry, stop, and target using the triangle’s height and nearby price action.
  • Use appropriate position sizing and risk management.

Conclusion

A descending triangle is a useful, widely recognized chart pattern for identifying potential bearish continuations or, less commonly, bullish breakouts. Its effectiveness improves when combined with volume confirmation, trend context, and other technical indicators. Always manage risk and be aware of false signals.