What is Descending Triangle?
To recognise this less common occurrence, context is important, particularly its position within a broader trend. Traders watch for signals such as positive divergence on momentum indicators and increased volume when price is moving upward inside a triangle. Unlike the typical downward breakout, confirmation occurs when price breaks above the upper descending trendline. The accuracy of the descending triangle pattern in technical analysis is enhanced when used in conjunction with other technical indicators. Integrating the Relative Strength Index (RSI) with the descending triangle what is a descending triangle pattern allows traders to gauge momentum. An RSI showing a bearish divergence or is in an overbought territory provides additional confirmation that a downward move is imminent when the support level is breached.
Gaps occur a lot when the market turns volatile like is often the case once it breaks out from a triangle pattern. Sometimes the market will gap right past the breakout level, which makes it impossible to enter at that level. If the bearish trend that precedes the triangle is long and consistent, it’s much more likely that we’ll see a breakout to the downside. Having had a look at the definition of the descending triangle pattern, we’ll now move on to discussing some trading setups. Like we just mentioned, a descending triangle usually occurs in a negative trend, signaling that the bearish sentiment and direction are here to stay.
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- As today’s GBP/USD chart shows, the pound sterling fell by nearly 1% against the US dollar in just one hour, forming an exceptionally long bearish candle.
- If the stock’s price bursts through the triangle’s lower trendline and the 20-day average crosses below the 50-day average (death cross), it confirms the bearish signal.
- A horizontal price support level forms at the same time following the price action.
- Descending triangles come with several notable features that can be used by traders and investors to easily identify them.
- During these conditions attempts to push the price up are met with selling and attempts to push the price down are met with buying.
- The idea is that sellers’ strength allows them to pull the price below the support level despite the short-term consolidation.
A Descending Triangle pattern usually signifies a pessimistic outlook in the market and possible price declines. This pattern indicates a conflict between sellers and buyers, with the former applying increasing pressure while the latter maintains a steady level of purchasing support. That’s because it points to the continuation of a downtrend or the reversal of an uptrend. Connecting the start of the upper trendline to the beginning of the lower trendline completes the other two corners to create the triangle. The upper trendline is formed by connecting the highs, while the lower trendline is formed by connecting the lows.
Traders can use this pattern to determine whether the demand for an asset, derivative, or commodity is weakening. When the price breaks below the support level, it indicates that the downward momentum can continue. The descending triangle, often known as the falling triangle, has an inherent measuring technique that could be applied to the pattern to gauge likely take-profit targets. The structure of the pattern, with its sequence of lower highs, suggests that either purchasing enthusiasm is dwindling at successively lower levels, or sellers are growing more aggressive. The upper trendline’s downward slope frequently indicates waning bullish momentum.
Buyers cause the market to become overbought, which gets corrected as sellers start pushing the price back down. However, buyers then re-enter the market and cause prices to rally back to the recent highs, which has now become an area of resistance. Once you identify the lower trade volume, you must measure the distance from the first high to the low. Then, project the same from the breakout area, which becomes your target price. Traders often use this pattern to anticipate short-selling opportunities or to set stop-loss and take-profit levels. However, it’s essential to combine it with other indicators or analysis techniques for better accuracy.
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- The anticipation gives traders an edge in timing their market entries, ensuring they enter a trade before a potential decline.
- The price target is measured by taking the triangle’s height (from low to high) and projecting it from the breakout point.
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If the price decisively breaks above the upper trendline, enter long positions. The direction of the stock price movement after the triangle breaks out is critical. The descending triangle pattern is considered complete when the price breaks below the horizontal support line. A descending triangle pattern is formed by drawing a horizontal line that connects a series of relatively equal lows, creating a support level.
The target calculation of the descending triangle pattern involves measuring the height of the triangle pattern. The height is determined by measuring the vertical distance from the peak of the first high to the flat support level at the bottom of the triangle. The descending triangle’s height reflects the maximum distance the price has moved within the pattern.
