A bearish MACD crossover, where the MACD line crosses below the signal line, supports the bearish signal of the descending triangle. This descending triangle chart pattern obeys the identification guidelines set for the pattern. At point A, price peaks below the horizontal trendline but few chart patterns are perfect. At point B, price stages a breakout and that results in a swift upward move. At one time, I didn’t have a favorite chart pattern because I considered them just buy or sell signals. However, I was starting to show affection for descending triangles with upward breakouts.

The price continues bearish momentum following the breakout of the horizontal support line. At the same time, trading volumes grow significantly, returning the volatility and investor interest in the instrument. Chart patterns are used specifically by traders and investors to find significant patterns in the prices of publicly traded assets such as stocks or bonds.

In addition, in the last attempt of the bears to break through the level, the index price formed a bullish hammer reversal pattern, which marked the beginning of a long rise in prices. That’s because it points to the continuation of a downtrend or the reversal of an uptrend. The upper trendline must be horizontal, indicating nearly identical highs, which form a resistance level. The lower trendline is rising diagonally, indicating higher lows as buyers patiently step up their bids. This contrasts with descending triangle formations that occur when price lows are consistent, with price highs increasingly lower.

Main Groups of Chart Patterns

Once the breakdown occurs, technical traders are able to aggressively push the descending triangle stock price of the asset even lower and make significant profits over a brief period. Traders using this approach simply have to wait for the falling triangle pattern to appear. The next stage after the pattern appears is for the bullish trend to resume. The Heikin Ashi candlesticks will become bullish before the breakout, in the majority of cases.

Golden Cross Trading Pattern – What Is It & How Does It Work?

Usually, when a price drop happens, buyers come in the push the price up even higher. However, the descending triangle indicates when there is a lack of buying pressure. Here, sellers begin selling at even lower prices, which suggests a series of lower highs. A breakdown usually occurs when volume is high, and the move following is fast and severe. Prices can also defy the typical characteristics of descending triangles by moving sideways or even higher for extended periods. In such cases, traders may need to adjust their trendlines if prices break out in the opposite direction of their initial expectations.

To confirm a descending triangle pattern, traders use trend indicators and oscillators. A commonly used approach is to compare the short-term and long-term simple moving averages. For example, if the 20-day SMA is below the 50-day SMA, it indicates a bearish trend, aligning with the descending triangle pattern. Additionally, traders can use the Moving Average Convergence Divergence (MACD) indicator.

While trading in an uptrend is easy and most people can do it, trading in a downtrend is significantly challenging. One such pattern that holds significant importance in the downtrend is the descending triangle pattern. 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 pattern typically forms during a downtrend and signals its potential continuation. A descending triangle pattern stock market example is illustrated on the daily stock chart of Groupon (GRPN) stock above.

1. In addition, the high follow-through rate of these patterns means that once a breakout occurs, the price tends to move significantly in the direction of the breakout.
2. For ascending triangles, stop losses might be placed just below the last swing low, while for descending triangles, they might be set just above the recent swing high.
3. Our content is packed with the essential knowledge that’s needed to help you to become a successful trader.
4. Most of the time, a downward triangle formation is considered bearish, but not always.
5. Most traders often struggle when it comes to identifying the trend.
6. After defining the price movement, the indicated segment is superimposed from the lower support line downwards.
7. Traders who wait for the “classic” descending triangle pattern will often find themselves on the sidelines.

This will also allow you to define the approximate target profit for an open short position. However, it is not always easy to spot the trend beginning as the market is often unpredictable. Here, one can use different candlestick chart patterns of both trend reversal and continuation. One of the patterns signaling a trend beginning is a descending triangle formation covered in this article.

Using descending triangle patterns to Buy/sell Stocks

Traders often initiate a short position following a high volume breakdown from lower trend line support in a descending triangle chart pattern. Traders typically watch for a breakout from the symmetrical triangle to signal the next significant price movement. They often look for an increase in trading volume alongside the breakout, as this can confirm the strength of the move. In most cases, it’s used as a signal for potential price continuation. However, some traders see it as a reversal indicator, depending on what the preceding trend looks like.

Chart Patterns Triangles

The first step in trading this strategy is to pick a stock that has been in a downtrend or in a consolidation phase. The time frame of the chart is irrelevant as you can use this strategy across any time period. Once you have identified a stock and the time frame, wait for price action to contract. When the level of support is broken, it becomes a level of resistance, confirming the overall downward trend of the asset’s price over time. Since price is consolidating with a bearish bias, traders need to watch out for impending breakout down through the support level.

However, it’s not as sophisticated as TrendSpider, but it is free. In this example price ended up breaking out but you’ll see a bit later that the breakout failed and came back to retest the previous resistance level. Being a bearish trend, the duration and length are less important than the strength of the pattern formation. The lower horizontal trend line needs at least two lows to retain, thus forming the line. For example, if the short entry price of this pattern is $55 and the pattern’s height is $10, the profit level is $45 for the short trade.

1. A breakdown usually occurs when volume is high, and the move following is fast and severe.
2. To find your price target, take the thickest portion of the triangle and subtract it from the breakout point.
3. Once the breakdown occurs, technical traders are able to aggressively push the price of the asset even lower and make significant profits over a brief period.
4. Also note that you will not always see a bullish signal from the EMA’s prior to the breakout.
5. However, these patterns are not always reliable, and can sometimes lead to false signals.

If the price breaks below the lower trendline but the selling volumes aren’t higher than those before the breakout, there is a risk the price will return. However, if you use your imagination, you can picture a head-and-shoulders top, perhaps a complex one (two shoulders on the left and two on the right that are yet to appear). I would expect the stock to rise up to the price level of the left shoulder and then drop. This repeated failure to breach the resistance point of the consolidation area helps sellers gain confidence, anticipating a downward market trend continuation. The price weakening and dropping in a bearish trend direction causes panic among buyers while sellers are more optimistic and confident of further price depreciation. Subjectivity is essential when trading the descending triangle pattern.