The descending triangle is a chart pattern used in technical analysis. The pattern usually forms at the end of a downtrend but can also occur as a consolidation in an uptrend. A regular descending triangle pattern is commonly considered a bearish chart pattern with an established downtrend.
The Descending Triangle Reversal Topping Pattern
Well, I’d like to give it some buffer (like 1 ATR) and set it above the downward trend line. When the price tests Support multiple times, it’ll attract more buyers and increase the number of stop orders below Support. Time flies, especially when things are running smoothly, and this year so far has been a period free of dramatic events across the capital markets.
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Place a stop-loss order above the breakout point to protect against false breakouts. Very useful information and have often seen that but never known how to enter or exit it. And if you want to ride trends in the market, then a trailing stop loss works best.
Descending Triangle Pattern Examples
- StocksToTrade’s top-of-the-line stock screener can help you spot this pattern.
- One of the most traditional and straightforward technical indicators to use is the moving average.
- If this happens, you can draw an angled trendline along those lower highs.
- While an increase in volume at the breakout is preferred as it indicates stronger market conviction, it is not always necessary.
- Some of the tools used include charts and graphs, including triangles and candlesticks.
In this example, APM formed a descending triangle from the market open. APM broke support and continued downward until consolidating from 10 a.m. As traders, we use technical analysis to help us identify trading opportunities. You can learn to navigate this indecision by using technical analysis.
Descending Triangle Pattern: How to Identify and Trade It
The duration of the pattern can range from a few weeks to many months, and the volume usually contracts as the pattern develops. As a descending triangle pattern develops, volume usually contracts. An ideal validation of the pattern occurs when there’s a downside break with an expansion of volume for confirmation. While an increase in volume at the breakout is preferred as it indicates stronger market conviction, it is not always necessary.
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 what is a descending triangle a descending triangle has formed. Be sure to wait for a breakout before entering a position, long or short. The ascending triangle is the exact opposite of the descending triangle.
Secondly, a descending triangle pattern is a bearish signal while a falling wedge is a bullish signal. Traders can combine price techniques, like the moving average, and chart patterns with technical indicators. In this strategy, traders use the descending triangle pattern to anticipate potential breakouts, and the moving average indicators trigger the signal to initiate a trade. The descending triangle pattern differences with bull flag chart patterns are its shape and what is signals. Secondly, a descending triangle is a bearish signal while a bull flag is a bullish signal. They can be either a continuation pattern, if validated, or a powerful reversal pattern, in the event of failure.
The falling wedge appears in a downtrend but indicates a bullish reversal. 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. A breakdown is a downward move in a security’s price, usually, through an identified level of support, that predicts further declines. Also, there is always the possibility that prices move sideways or higher for lengthy periods of time, acting contrary to the usual features of descending triangles. In some situations, trend lines may need to be redrawn as the prices break out in the opposite direction than the one that was expected.
If that happens, the last thing you want to do is chase the market after a breakdown of the descending triangle pattern because that’s when the market is about to snap back higher. Subjectivity is essential when trading the descending triangle pattern. Traders who wait for the “classic” descending triangle pattern will often find themselves on the sidelines. There is no need to make use of volumes when trading with this strategy. Also note that you will not always see a bullish signal from the EMA’s prior to the breakout.
The descending triangle has a built-in measurement method that is used to analyze the pattern to determine possible take-profit levels. Traders can calculate the length of the descending triangle by measuring the angle between the pattern’s highest point and the flat support line. You can later reverse the same distance, starting from the breakout point and ending at the probable take-profit level.
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 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. Personally, I prefer to trade the continuation patterns (bullish for ascending triangles, bearish for descending triangles). In my opinion, trading the continuations (not the reversals) results in higher success rates and larger profit potential.
There are three potential triangle variations that can develop as price action carves out a holding pattern, namely ascending, descending, and symmetrical triangles. Technicians see a breakout, or a failure, of a triangular pattern, especially on heavy volume, as being potent bullish or bearish signals of a resumption, or reversal, of the prior trend. In contrast to the symmetrical triangle, a descending triangle has a definite bearish bias before the actual break. The symmetrical triangle is a neutral formation that relies on the impending breakout to dictate the direction of the next move.
One of the main characteristics unique to Heikin Ashi charts is the fact that they can depict the trend easily. Most traders often struggle when it comes to identifying the trend. You can resolve this confusion by switching to Heikin Ashi charts. Descending triangle patterns, therefore, offer insight into the likely direction of a stock, not an exact prediction. Typically, traders that leverage this tool monitor the stock’s price, waiting for a breakout. While straight lines are used to trace the highs and lows, most likely, if the line truly followed the actual price peaks and troughs, it would be bumpy.
