Descending Triangle Trading Guide

When the pattern’s breakout occurs, it’s usually indicative of a bearish move. The breakout’s direction and price projection, determined by the widest distance of the pattern subtracted from the resistance breakout, can serve as a crucial guideline. However, this target isn’t absolute and should be used with other technical analysis tools.

A descending triangle pattern generates an accurate bearish breakout 54% of the time. In other words, 54% of the time, a calculated target price will be reached following a breakout. Imagine a typical descending triangle forms, but instead of the price breaking out below the support line from above, the price breaks out above the resistance line from below. This would imply momentum is likely to continue driving the share price higher.

Just like feeling squeezed into that mountain valley, the descending triangle on a stock chart shows a downtrend being compressed between two converging lines. The stock makes lower highs against a flat support level, forming the shape of a downward-pointing triangle. It’s also important to remember that while the pattern is typically considered bearish, descending triangle bullish signals can emerge.

What is a descending triangle in stock charts?

The first method is more aggressive and places an entry point just below the support. Once the horizontal line is broken, the trade opens descending triangle stock with a stop loss placed above the support – which now acts as resistance. In case the price action returns within the triangle, the pattern is invalidated, and the stop loss is triggered. This descending triangle reversal paints a bearish picture but with a twist at the bottom.

Disadvantages of Trading on the Descending Triangle Pattern

  • The falling wedge appears in a downtrend and indicates a bullish reversal.
  • At a minimum, two price lows and two price highs are required to produce the formation.
  • Place a stop-loss above the breakout point to limit potential losses.
  • The descending triangle pattern is considered complete when the price breaks below the horizontal support line.

If both lines were extended right, the descending trend line could act as the hypotenuse of a right triangle. A right triangle would form if a perpendicular line were drawn extending up from the left end of the horizontal line. As previously mentioned, the formation requires at least two highs and two lows. Not only that, you need to identify increasingly lower highs along with relatively consistent lows. Over time, your ability to discern where the line should be placed will improve through repetition. Daily charts are commonly used, though the pattern can be effective across various timeframes from minutes to months.

Whether you’re a seasoned trader or just getting started, mastering your day trading psychology can help you achieve your objectives. Many traders often underestimate the power of day trading psychology in achieving positive results. Triangle patterns come in three varieties – ascending, descending, and symmetrical – although all three types of triangles are interpreted similarly. So the way to invest using a descending triangle is to accumulate slowly in a fundamentally sound company that has some hiccups in the short term. However, the peaks are always lower than the past peaks forming a descending triangle.

  • Patterns develop because of traders’ mindset and emotional states.
  • Ideally, there should be at least two or more touches on the falling trendline and the horizontal trendline.
  • A descending triangle is a bearish chart pattern that typically emerges during a market downtrend.
  • This contrasts with descending triangle formations that occur when price lows are consistent, with price highs increasingly lower.
  • As an Economics graduate, he has taken a keen interest in the future potential of blockchain in the financial industry.

Longs are also less concerned with the lower highs that form as long as support holds. With each test of support, shorts think that support will finally break. A market analyst and member of the Research Team for the Arab region at XS.com, with diplomas in business management and market economics.

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. A descending triangle is considered a bearish continuation pattern, meaning you will be looking to trade in the direction of an already established downtrend. The descending triangle gives us the consolidation a stock needs to continue the downtrend.

Learning new concepts about trading approaches and the stock market is critical to your success as a trader. Low float stocks are a type of stock with a limited number of shares available for trading, which tends to cause… However, this is seen as a less reliable signal and is not commonly used as an entry signal. Let us look at the daily charts of Bajaj Consumers, where I have marked a descending triangle with blue lines. All patterns, including the descending triangle, can happen in many different time frames.