Filippo Ucchino is the founder and CEO of the brand InvestinGoal and the owning company 2FC Financial Srl. He became an expert in financial technology and began offering advice in online trading, investing, and Fintech to friends and family. This article represents the opinion of the Companies operating under the FXOpen brand only. AxiTrader Limited is a member of The Financial Commission, an international organization engaged in the resolution of disputes within the financial services industry in the Forex market.

Then, chart the descending triangle pattern once you identify the price action. Descending triangles appear in a downtrend, signaling a potential continuation of the existing bearish trend. However, they can also be reversal patterns if they form after a prolonged downtrend. A symmetrical triangle is composed of a diagonal falling upper trendline and a diagonally rising lower trendline. When the pattern’s breakout occurs, it’s usually indicative of a bearish move.

How Long Does it Take for the Descending Triangle Pattern to Form?

The descending resistance line shows waning momentum as buyers lose interest and demand weakens. The descending triangle pattern is characterized by a horizontal support line and a descending trendline. The price forms lower highs, creating a triangle shape with a flat support line. A clear break below the support level with increased selling volume strengthens the bearish signal. Set your profit target based on the triangle’s height (measured from peak to support) projected downwards. Last but not least, it’s important to note that a descending triangle carries a distinct bearish bias, unlike the symmetrical triangle, which remains neutral until the breakout.

The downside breakout from the support triggers a strong bearish momentum-led decline. Open an account with a leading Forex and CFD broker like Pepperstone (eToro – for US residents) to access fast trade execution. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. If both lines were extended right, the descending trend line could act as the hypotenuse of a right triangle. A right triangle would form if a perpendicular line were drawn extending up from the left end of the horizontal line.

This is utilized as an initial signal to set up long positions in expectation of a breakout. The first step is to identify the chart pattern, the second step is to find the required trendlines, the third step is to monitor the breakout, and finally open a position following the breakout. The descending triangle is one of three triangle patterns used in technical analysis. On daily charts, ascending triangles typically show up 7–10 times a year, offering traders plenty of opportunities to act. These patterns are known for their reliability, with upward breakouts happening 54% of the time. For example, in 2021, Northwest Bancshares (NWBI) displayed a symmetrical triangle.

• Traders often initiate a short position following a high volume breakdown from lower trend line support in a descending triangle chart pattern.
• A break below the support line usually signifies the continuation of a downturn as the price tightens within the triangle.
• If a more recent reaction high equals or exceeds the previous reaction high, then the descending triangle is invalid.
• A descending triangle pattern is identified by a series of lower highs that form a downward-sloping resistance line and a relatively flat support line at the bottom.
• The descending triangle chart pattern is usually a bearish pattern formed by a series of lower highs and a horizontal support level.

Here, sellers start selling for even less, indicating a string of lower highs. A breakdown generally appears when the volume is high and the move that follows is fast. The descending triangle chart pattern progressed through March, with the price tightening between the descending trendline and the horizontal support. Trading volume showed a gradual increase during this period, indicating growing interest in the descending triangle pattern’s potential bearish breakout. The GBP/JPY currency pair broke below the established support level in April, marking a significant downward movement.

The Pound Trades Sideways Ahead of Key Macroeconomic Data Releases

It implies that the current price action pause is probably a consolidation stage before the negative trend picks back up speed. A breakdown below the support level is frequently anticipated by traders as it may lead to a large sell-off. The psychology behind the pattern is that sellers try to pull the price down but fail due to a strong support level, so the price rebounds. That is, the price bounces back and forth within a triangle between the two trendlines. The idea is that sellers’ strength allows them to pull the price below the support level despite the short-term consolidation. Apart from descending triangles, other bearish chart patterns are listed below.

Descending Triangle Reversal Pattern—Top

To ensure that the breakout has sufficient momentum, some traders refrain from opening a position until the volume spike occurs. The flat support line indicates a level where buyers are stepping in, but the lower highs show that sellers are becoming increasingly aggressive. When the support line fails to hold, it usually results in a downward breakout.

The price action in this particular case stops moving forward at the end of a downward trend. Price action then eventually breaks out to the upside from the bottom of the descending triangle reversal pattern. You can trade long positions with this setup in contrast to the earlier method.

• According to the chart, the security has broken out of a descending triangle pattern on the daily charts with decent volumes.
• In most cases, a descending triangle pattern can also see a sloping base as well.
• Any trading pattern, including the descending triangle, however, does not guarantee success.
• Traders can calculate the length of the descending triangle by measuring the angle between the pattern’s highest point and the flat support line.
• Bollinger Bands add an accurate layer of analysis by indicating volatility.

If a trader used standard rules and opened a sell position after the breakout candlestick closed, the pattern rules couldn’t be applied anymore as the target would be reached. Therefore, a trader could consider a surge in volumes and a sell signal of the MACD indicator to open a position earlier during the breakout candle formation (1). Descending triangle pattern psychology involves buy traders experiencing negative sentiment and pessimism as the market price is falling in a bearish direction.

The bottom trendline, which is flat, denotes a level of support where buyers often step in to stop further price declines, at least temporarily. In order to confirm the descending triangle pattern, look for a breakout below the support level on significant volume. A descending triangle pattern stock market example is illustrated on the daily stock chart of Groupon (GRPN) stock above. Groupon stock price originally trends lower in a downward direction before the price stalls and bounces within a narrow range, evening forming the descendign triangle. Groupon price moves lower below the support trendline before a sharp price drop to the exit price of the trade.

How the Descending Triangle Pattern Works

The completion of the pattern occurs after the end of a retracement in a downtrend. As such, always factor in broader market sentiments and implement risk management mechanisms to sail through uncharted financial territories. A cautious, informed approach can turn the descending triangle pattern into a profitable trading opportunity. Once the stock price breaks below the horizontal support line, project the measured descending triangle chart pattern distance downward from the breakout point. Here, the stock price stalls after a downtrend, bouncing off a horizontal support marked by multiple lows. While lower highs form, the price refuses to break below the support level.

Inverse Head and Shoulders: Stock Reversal Pattern Overview

Then you project the same from the breakout area which becomes your target price. Like with any strategy, you can use the descending triangle pattern to buy/sell stocks by knowing when to enter, take profits, and cut your losses. As we mentioned above, the simplest way to use this pattern is to buy the breakout of the triangle.

You can spot the descending triangle reversal pattern at the peak of a rally. This pattern starts to take shape as volume decreases and the stock fails to reach new highs. A horizontal price support level forms at the same time following the price action.