Descending Triangle

What is a Descending Triangle?

A descending triangle is a bearish chart pattern utilized in technical analysis that is made by drawing one trend line that interfaces a series of worse high points and a subsequent horizontal trend line that interfaces a series of lows. Oftentimes, traders watch for a move below the lower support trend line since it recommends that the descending momentum is building and a breakdown is impending. When the breakdown happens, traders go into short positions and forcefully assist with pushing the price of the asset even lower.

What Does a Descending Triangle Tell You?

Descending triangles are an exceptionally well known chart pattern among traders since it plainly shows that the demand for an asset, derivative or commodity is debilitating. At the point when the price breaks below the lower support, it is an obvious sign that downside momentum is probably going to proceed or turn out to be even more grounded. Descending triangles offer technical traders the chance to create substantial gains over a concise period of time. Descending triangles can form as a reversal pattern to an uptrend, yet they are generally viewed as bearish continuation patterns.

Step by step instructions to Trade a Descending Triangle

Most traders hope to start a short position following a high volume breakdown from lower trend line support in a descending triangle chart pattern. By and large, the price target for the chart pattern is equivalent to the entry price minus the vertical level between the two trend lines at the hour of the breakdown. The upper trend line resistance likewise fills in as a stop-loss level for traders to limit their expected losses.

An Example of a Descending Triangle

The chart below shows an illustration of a descending triangle chart pattern in PriceSmart Inc.

In this model, PriceSmart Inc. shares have encountered a series of worse high points and a series of horizontal lows, which made a descending triangle chart pattern. Traders would search for a definitive breakdown from the lower trend line support on the high volume before taking a short position in the stock. On the off chance that a breakdown happened, the price target would be set to the difference between the upper and lower trend lines - or 8.00 - minus the price of the breakdown - or 71.00. A stop-loss order might be put at 80.00 in the event of a false breakdown.

Difference Between Descending and Ascending Triangles

Both the ascending and descending triangle are continuation patterns. The descending triangle has a horizontal lower trend line and a descending upper trend line, while the ascending triangle has a horizontal trend line on the highs and a rising trend line on the lows. Besides, triangles show an opportunity to short and recommend a profit target, so they are basically various looks on a likely breakdown. Ascending triangles can likewise form on a reversal to a downtrend yet they are all the more usually applied as a bullish continuation pattern.

The Limitations of Using a Descending Triangle

The limitation of triangles is the potential for a false breakdown. There are even circumstances where the trend lines should be redrawn as the price action breaks out the other way - no chart pattern is perfect. On the off chance that a breakdown doesn't happen, the stock could rebound to re-test the upper trend line resistance before taking another action lower to re-test lower trend line support levels. The more times that the price contacts the support and resistance levels, the more solid the chart pattern.

Highlights

• A descending triangle is a signal for traders to take a short position to speed up a breakdown.
• A descending triangle is discernible by drawing trend lines for the highs and lows on a chart.
• A descending triangle is the partner of a ascending triangle, which is one more trend line based chart pattern utilized by technical analysts.