It should be noted that this pattern does not guarantee a reversal in direction. I will show you the techniques to harness this pattern’s reliability and accuracy to improve your trading. Essentially, this pattern is a consolidation that indicates a pause in upward momentum. It can either resolve to the upside or downside depending on whether or not shares are re-accumulated during the consolidation. The figure above demonstrates how to project a potential take-profit level by transferring the distance from A to B lower down, from C to D. Jesse has worked in the finance industry for over 15 years, including a tenure as a trader and product manager responsible for a flagship suite of multi-billion-dollar funds.

Descending Triangles

Eventually, the price breaks out in any direction (up or down) and forms a sustained trend. In this case, the lower trendline must be horizontal and connect the almost identical lows. However, the upper trendline falls diagonally in the direction of the apex. Often the descending triangle pattern is often misread even by the experts as the formation of a bottom after the downtrend. The Descending Triangle is one of the three triangle chart patterns out there.

How to Find a Descending Triangle Candlestick Pattern

The pattern completes itself when the stock price breaks out of the support level and continues to fall. A descending triangle pattern failure, also known as a “failed descending triangle pattern”, is when the descending triangle forms but market prices fail to continue lower. A descending triangle pattern trading strategy is to scan the U.S. equities market for stocks trending -10% or lower. Enter a short trade when the market price drops below the pattern support line on increased selling volume (red bars). Over time, it has become one of the most commonly used patterns in technical analysis, along with other popular patterns like the head and shoulders, double top, and double bottom.

Ascending vs Descending Triangles

The continuation signal is considered more important although traders use both signals to forecast a trend’s direction. 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.

TRADING HELP

Confirm the presence of a descending triangle pattern on the stock price chart, characterized by a horizontal support line and a descending upper trendline. A descending triangle pattern is formed by drawing a horizontal line that connects a series of relatively equal lows, creating a support level. Simultaneously, a trendline is drawn connecting a sequence of lower highs, forming a descending upper trendline.

This pattern starts to take shape as volume decreases and the stock fails to reach new highs. A horizontal price support level forms at the same time following the price action. Identifying a downward triangle formation can help traders make more informed decisions by providing signals about future price movements. Like all other technical analysis tools, however, a descending triangle pattern is susceptible to false signals.

• The continuation signal is considered more important although traders use both signals to forecast a trend’s direction.
• The descending upper trendline reflects a bearish bias, indicating that sellers are consistently entering at lower stock prices.
• One must note that sellers can opt for short selling when the downside breakout materializes.
• The stock price often reaches this level and bounces off until the breakout eventually happens.
• Triangles represent a fall in volatility that could increase after some time.

You’ll learn how this shape often foreshadows a bearish breakout, but sometimes instead acts as a trend reversal sign for an upside breakout. Breakdown confirmation remains essential for descending triangles to signal reversals. The pattern is only considered validated when the price successfully penetrates support with an expansion of volume. Traders and intraday speculators can also mix price action strategies, chart patterns, and technical indicators. One of the most traditional and straightforward technical indicators to use is the moving average.

• Breakout Trading Strategy performs exceptionally well with triangles because triangle patterns provide clear entry triggers when price penetrates the upper or lower trendline.
• The pattern can provide false breakouts, sideways movement of prices and price does not break out in the direction predicted.
• The pattern completes itself when the stock price breaks out of the support level and continues to fall.
• One of the main characteristics, unique to the Chaikin Money Flow indicator, is its ability to gauge the buying and selling power.

Triangle Patterns: Meaning, Types, and How to Trade

That said, one can notice that the lower trend line rises diagonally, giving the indication of higher lows as the bulls in the market patiently increase their bids. Eventually, buyers in the market lose their patience and start purchasing the stock above the level of resistance. Once the breakout occurs and the confirmation of the same takes place, the upper trend line serves as the support line. Typically, a breakout from such a triangle strongly indicates the future trend direction. Generally, an asset’s price rises and falls, remaining between the upper and lower trendlines and moving toward the triangle’s apex.

In the chart above, the height/depth of the descending triangle is equal to the price target. Then, spot a horizontal support line connecting at least two low points, forming the bottom side of the triangle. For professional-grade stock and crypto charts, we recommend TradingView – one of the most trusted platforms among traders. Because of its shape, the pattern can also be referred to as a right-angle triangle. Two or more declining peaks form a descending trend line above the horizontal line that converges with the horizontal line as it descends. The pattern is a continuation pattern of a bullish event that is taking a breather as the…

Traders use triangles to pinpoint when the narrowing of a stock or security’s trading range after a downtrend or uptrend occurs. Yes, descending triangle patterns hold 87 percent of the time, according to decades of research compiled by Tom Bulkowski in his book The Encyclopedia of Chart patterns. It is also important to remember that descending triangles can fail at a rate of 13%, and traders should always have an exit strategy in case of a failed pattern.

A descending triangle is a powerful technical analysis pattern with a predictive accuracy of 87%. The pattern is flexible, can break out up or down, and is a continuation or reversal pattern. Twenty years of trading research show the descending triangle pattern has an 87% success rate in bull markets and an average profit potential of +38%.

A breakdown generally appears when the volume is high and the move that follows is fast. The triangle chart patterns popularity is enhanced by their versatility across different time frames and markets in technical analysis. The triangle pattern develops when price action contracts and narrows during periods of consolidation. The market consolidation occurs within a range-bound market, reflecting a balance between supply and demand and indicating a continuation or reversal depending on the breakout direction.

Heikin-Ashi charts can apply to any market and are a trading tool used in conjunction with technical analysis to assist in identifying trends. In this strategy, traders watch for the descending triangle pattern to form and wait for the bullish trend to begin using the Heikin Ashi charts. This strategy anticipates descending triangle stock 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. A regular descending triangle pattern is commonly considered a bearish chart pattern or a continuation pattern with an established downtrend.

Trading Education

The triangle patterns do not form precise triangles when the angles are too shallow, making it difficult to interpret market signals. For instance, in a bullish triangle pattern, the lower trendline slopes upward, indicating increasing demand, while the upper trendline remains flat, suggesting resistance. A triangle pattern works by forming between two converging trendlines, requiring at least two touchpoints on each line to validate the pattern. The trend lines converge at a point, forming a precise triangle shape that signals market indecision or consolidation before a breakout.

The triangle pattern’s visual representation helps traders understand whether the market will continue in its current trend or reverse. Descending triangle chart patterns can be easily identified on price charts and provide a target level based on the triangle’s maximum height. However, there is a risk of a false breakdown, where the expected downtrend reversal does not occur as anticipated.