How to trade the Descending Triangle 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%. The descending triangle pattern is popular because it is reliable, accurate, and generates a good average profit. There are two ways you can trade a descending triangle chart pattern. In both cases, you will have to wait for the break of the support. 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.

This happens when the price action breaks lower before returning within the triangle. Another risk is that the price action can simply trade in a choppy manner, i.e. sideways with no clear breakout point. This is why it is important to double-check with the volume levels whether the breakout is real. As with every chart pattern, the descending triangle has both advantages and limitations. On the positive side, it is a relatively easy chart pattern to identify. Another advantage is that it produces a clear target to the downside, which one can aim at once the price action breaks lower.

The Benefits and Disadvantages of Using a Descending Triangle

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. A descending triangle pattern, however, may be bullish, with a breakout in the opposite direction, known as a reversal pattern. Since no chart pattern is perfect and analysis is often subjective, using descending triangles has limitations. A false breakdown may occur, or trend lines may need to be redrawn if the price action breaks out in the opposite direction.

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TRADING STOCKS IN THE BULLISH BEARS COMMUNITY

Usually, we like to see volume dry up into the consolidation if it is to resolve upward. More volume usually indicates more selling pressure in the descending triangle pattern. In the next section of this article, we illustrate five descending triangle trading strategies that can be used. We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started.

Patterns develop because of traders’ mindset and emotional states. Like all triangle patterns, the descending triangle is a pattern of consolidation. The pattern will typically suggest a bearish signal, with a stock’s price expected to continue to lower, on average, over time. However, as you’ll see below, a reversal what is a descending triangle can occur, indicating the stock is expected to move higher instead. As a result, when the price breaks out below the $58 support line, a short position is entered with a price target of $50. Traders can monitor alerts that notify them of changes in direction, for example, potentially revealing a new top or bottom.

How Do You Trade the Descending Triangle Pattern?

It can be applied to the pattern to determine likely take profit targets. For this pattern, traders can measure the distance from the beginning of the pattern, at the highest point of the descending triangle to the flat support line. That same distance can be transposed later on, beginning from the breakout point and ending at the potential take profit level.

Traders should pay attention to volume when trading a descending triangle chart pattern. Higher volume on the breakout is often considered a confirmation of trend reversal in this setup (see above chart). This means traders should be vigilant and wait for higher volumes before entering a trade on any breakout situation. As the descending triangle forecasts a potential bearish breakout, traders will look for an opportunity to sell once price breaks below the horizontal support line. Once a breakout does occur, a short entry can be taken with a stop loss above the final lower high before the breakout occurred. A descending triangle is a bearish chart pattern that typically emerges during a market downtrend.

Descending Triangle Pattern: How to Identify and Trade It

In this case, it becomes a continuation pattern instead of a reversal pattern. The classic version of this pattern forms with a trend line that is sloping and a flat or a horizontal support line. The pattern emerges as price bounces off the support level at least twice. The completion of the pattern occurs after the end of a retracement in a downtrend.

When trading the descending triangle pattern, we’re always looking for the support breakout to give us a potential entry point. Unlike the textbook saying that teaches retail traders that a support or resistance level gets stronger if we have multiple retests; contrary to that the reverse is true. However, the descending triangle reversal pattern can potentially reward you with bigger profits if traded in the right context. We only trade the descending triangle reversal pattern when this price formation develops at the end of a bullish trend, and in the context of an uptrend.

That means the right catalyst or technical setup can lead to more demand for a stock. In this example, the red line represents the thickest part of the triangle. As you can see in the chart, the price of the Euro relative to the British Pound hit the same bottom twice before rebounding. And if you want to ride trends in the market, then a trailing stop loss works best. If the price is close to reaching its price projection, there’s probably not much meat left in the move (and you might want to skip the trade). You’ve learned 3 different techniques to trade the Descending Triangle.

• These temporary pauses can take different forms, with the descending triangle being one of them.
• Here, sellers begin selling at even lower prices, which suggests a series of lower highs.
• Generally speaking, waiting for at least three consecutive candles before entering the trade is important.
• Also referred to as the ‘falling triangle’, the descending triangle pattern is one of the top continuation patterns that appear in the middle of a trend.