How the Descending Triangle Pattern Works

Diposkan pada 12 September 2022

Oftentimes, traders watch for a move below the lower support trend line because it suggests that the downward momentum is building and a breakdown is imminent. Once the breakdown occurs, traders enter into short positions and aggressively help push the price of the asset even lower. It clearly shows that the demand for an asset, commodity or derivative is weakening.

Chris Douthit, MBA, CSPO, is a former professional trader for Goldman Sachs and the founder of OptionStrategiesInsider.com. His work, market predictions, and options strategies approach has been featured on NASDAQ, Seeking Alpha, Marketplace, and Hackernoon. StocksToTrade in no way warrants the solvency, financial condition, or investment advisability ofany of the securities mentioned in communications or websites. In addition,StocksToTrade accepts no liability whatsoever for any direct or consequential loss arising from any useof this information.

The downside breakout from the support triggers a strong bearish momentum-led decline. You only have to check if the Chaikin Money Flow line has spent more time below the zero line during the time the descending triangle emerged. A false breakout is the most widely used tool that market makers use to stop loss hunting. The formation of this pattern at the top of uptrend gives rise to a reversal in the price trend.

  • In the technical world of trading, there are many different patterns to be aware of that will allow you to make more informed trading decisions.
  • The profit targets can be measured by considering the height of the back of the triangle and extending the distance from the lower breakout point.
  • Typically, the descending triangle is more powerful when traded in the context of a trend.
  • Patterns develop because of traders’ mindset and emotional states.
  • A descending triangle is a trading pattern in which there is a flat level of support at the bottom and progressively lower high points on the resistance level at the top.

The upper trend line resistance comes in handy as it performs the function of a stop-loss level to help reduce risks. Chart patterns, when used appropriately, can give your trading an edge, and this is the advantage you need to make money and becoming a more confident trader. A lot of traders look to enter a short position following a high volume breakdown from lower trend line support in a descending triangle pattern. Generally, the price target for the chart pattern is the same as the entry price minus the vertical height between the two trend lines at the time of the break. The trend line resistance found at the top can also be a stop loss level.

Mean Reversion Trading Strategies Explained

The moving averages can be a great source to alert you when to initiate a trade. In the following example, we use a 60-minute stock chart for General Motors . Traders can experiment with their own settings on the period of the moving average; this depends on the time period that you use. For example, for a daily chart time frame, you can use the 10, 20 or 20 and 50 period settings. The same concept of measuring the distance from the support to the first high is used to determine targets.

descending triangle pattern

In this review, you will become acquainted with this vital pattern, providing traders with a technical opportunity to make huge profits over a relatively short period. You may receive from time to time, announcement about offers with intent to promote this Website and/or facilities/products of ABC Companies (“Promotional Offers”). The Promotional Offer would always be governed by these Terms of Use plus certain additional terms and conditions, if any prescribed. The Website reserves the right to withdraw, discontinue, modify, extend and suspend the Promotional Offer and the terms governing it, at its sole discretion. Your right to use the facilities is personal to you; therefore, you agree not to resell or make any commercial use of the facilities.

What Is a Descending Triangle Pattern in Technical Analysis?

After the support zone breakout and opening order, the stop loss will be placed above the high of the last swing wave. For example, if there are a total of three swings in the descending triangle pattern then stop loss will be placed above the high of the third swing wave. To avoid false breakout in the descending triangle pattern, look for a big bearish candlestick breaching through the support zone. You must avoid support zone breakout by a Doji candlestick or a small candlestick. Because Doji does not indicate a breakout, but it indicates the indecision phase.

descending triangle pattern

The triangle pattern also works with technical analysis which can complement the fundamental analysis as well. The descending triangle reversal pattern at the bottom end of a downtrend is the direct opposite of a distribution event. In this case, you will find that price action stalls at the end of a downtrend. The descending triangle pattern is a type of chart pattern often used by technicians in price action trading. The pattern usually forms at the end of a downtrend or after a correction to the downtrend.

After a brief consolidation, price falls lower before breaking out from the 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.

Indications and Using the Ascending Triangle Pattern

However, it can also occur as a consolidation in an uptrend as well. When trading the most traded currencies, 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. Imagine that, at the top of the descending triangle chart pattern, there is a downtrend composed of a series of lower highs that are connected by a trend line sloping downwards. At the bottom, there is a solid floor of support that is tested at least 3-4 times.

You can resolve this struggle by switching to the Chaikin Money Flow. This compression to the downside is what makes the pattern bullish. Inside days are candlestick charts that occur within the bounds of a previous days’ highs and lows. It will draw real-time zones that show you where the price is likely to test in the future. For simplicity, body to wick ratio of the big breakout candlestick must be more than 70%.

There are 2 main strategies, which focus on the directional triangles , and the difference lies in how early to enter the breakout when it happens. The flat line at the bottom, which now serves as support, becomes a clear level for price to attack and break, and if it succeeds, will lead to lower lows. The descending triangle, with its top line sloping down, shows a bearish bias, as this indicates a series of lower highs. The flat line on top, which now serves as resistance, becomes a clear level for price to attack and break, and if it succeeds, will lead to higher highs. The ascending triangle, with its bottom line sloping up, shows a bullish bias, as this indicates a series of higher lows.

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After viewing a strong break below support, traders can enter a short position, setting a stop at the recent swing high and take profit target in line with the measuring technique. The resulting bounce off the support level leads to a lower high. Following this, price breaks down below the support with strong momentum. As you can see, the minimum measure distance is nothing but the project from the initial high. Depending on your charting platform, you will notice that volume bars also change. This is because they reflect the bullish/bearish sentiment based on the Heikin Ashi candlesticks.

If the height of descending pattern from the support zone is 60 pips, then the take profit level will be 60 pips away from the support zone. The take profit is measured by calculating the distance between the two trend lines when the triangle was first formed. The same line is then copied from the level where the breakout occurred, while the other end of the trend line signals a level where the pattern is completed. In this blog post we will discuss how the descending triangle is created, what the message that the market sends is, as well as share tips on a simple, but effective trading strategy based on descending triangles. Information on this Website sourced from experts or third party service providers, which may also include reference to any ABCL Affiliate.

There does need to be some distance between the lows with a reaction in between them. We endeavor to ensure that the information on this site is current and accurate but you should confirm any information with the product or service provider and read the information they can provide. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any financial institution. This editorial content is not provided by any financial institution.

Descending Triangle Pattern – How to Trade Like a Pro (

The dominant side, in this case sellers, need some breathing space to regroup for another push lower. These temporary pauses can take different forms, with the descending triangle being one of them. Crypto assets trading can be considered a high-risk activity, where crypto assets prices are volatile, and can swing wildly, from day to day. Please do your own research before making the decision to invest in, or to sell crypto assets. INDODAX is not soliciting for users to buy or sell crypto assets as an investment or for profit.

If the descending triangle broke in the same direction as the preceding trend, it is called a continuation pattern. However, if the breakout is in the opposite direction, it is called a reversal pattern. When the upper and lower level of a triangle interact, traders expect an eventual breakout from the triangle.

From beginners to experts, all traders need to know a wide range of technical terms. Here’s a full review of the descending triangle and how it works, which is very important. However there is no conflict on these services and commissions if any payable are in accordance of the extant regulations. No Information at this Website shall constitute an invitation to invest in ABCL or any ABC Companies. These are meant for general information only or to meet statutory requirements or disclosures.

This is then projected to the upside for the minimum price objective. You can see how the projected triangle depth measurement becomes a very accurate profit target. This is a powerful exit strategy that can maximize your profits. When price forms at least two swing waves with the same bottom zone and slopping downward.

Therefore if you are new to trading the descending triangle stock pattern, you need to have a lot of practice. Familiarizing yourself with it in the simulator will allow you to build your own custom triangle trading strategies. To get our profit target simply measure the depth of the triangle. Just count how many pivot meaning in telugu pips there are from the flat support line to the highest point of the triangle. Once you have that measurement, project it to the downside starting from the flat support level. A symmetrical triangle is a chart pattern characterized by two converging trendlines connecting a series of sequential peaks and troughs.

Buyers can then reasonably place stop-loss orders below the low of the triangle pattern. Because the ascending triangle is a bullish pattern, it’s important to pay close attention to the supporting ascension line because it indicates that bears are gradually exiting the market. Bulls are then capable of pushing security prices past the resistance level indicated by successful forex trading strategies the flat top line of the triangle. It is important for every trader to recognize patterns as they form in the market. Patterns are vital in a trader’s quest to spot trends and predict future outcomes so that they can trade more successfully and profitably. Triangle patterns are important because they help indicate the continuation of a bullish or bearish market.

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