In other words, 54% of the time, a calculated target price will be reached following a breakout. A descending triangle pattern indicates the price of a security is likely to continue to fall. The formation reveals a price that is lowering over time and assumes this momentum will persist in the short term. Imagine a typical descending triangle forms, but instead of the price breaking out below the support line from above, the price breaks out above the resistance line from below.

The descending triangle chart pattern enables traders to calculate the distance from the pattern’s highest point, which serves as its starting point, to the flat support line. This kind of technical analysis recognises a downward trend that eventually overcomes the resistance levels, causing the price action to fall. The descending triangle, on the contrary, shows when there isn’t much buying pressure. 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.

• Descending triangles form in the intermediate (middle) part of a bearish price trend and these patterns indicate a continuation of a already-established bearish trend.
• Traders generally follow 4 major steps to trade with a Descending Triangle chart pattern in the stock market.
• Using Heikin Ashi charts along with the descending triangle pattern you can develop a powerful but simple trading strategy.
• This simple volume based descending triangle pattern is easy to trade but requires lot of time to watch the charts.
• As with all technical patterns, it’s essential to use it in conjunction with other indicators and methods for the best results.

Can the Descending Triangle Pattern be Bullish?

Traders consider opening a long or short position once the falling triangle pattern is verified, depending on the direction of the price descending triangle chart pattern movement. After recording a lower high just below $60 in December 1999, Nucor formed a descending triangle early in 2000. In late April 2000, the stock broke support with a , sharp break, and increase in volume to complete the formation. This contrasts with descending triangle formations that occur when price lows are consistent, with price highs increasingly lower.

We should expect a potential downward breakout if the price repeatedly bounces off the support level while making lower highs. The price must move a minimum amount before the breakout from the initial high. A shorter distance is anticipated after the price breaks out below the support level. Trading is sometimes  quite simple if you recognize the descending triangle reversal pattern before the breakout. The statistics for the descending triangle pattern reveal a 64% average success rate in predicting bearish breakouts. The descending triangle pattern shows a 35-40% probability for a bullish breakout and 60-65% for a bearish breakout, according to Thomas Bulkowski’s Encyclopedia of Chart Patterns.

Descending Triangle Pattern Failure Causes

This shape reflects decreasing bullish momentum that may lead to an eventual bearish breakdown. Traders recognize the price is in a downtrend, draw the lower horizontal line after at least two unsuccessful attempts to break the support level. Lastly, place a stop loss order above the lower horizontal support line while trading in stock market. Prices on the upper trendline continue to fall, resulting in a triangular formation that is getting smaller until the lower trendline’s level of support is broken. Traders should be on the lookout for a potential breakout through the support level as the price is consolidating with a bearish bias. Technical traders have the opportunity to make substantial profits over a brief period.

Step #2: Descending Triangle Continuation Pattern

In most cases, you will find that the Heikin Ashi candlesticks turn bullish prior to the breakout. This can be used as an initial signal to prepare for long positions in anticipation of a breakout. The descending triangle pattern is a type of chart pattern often used by technicians in price action trading.

In this case, a trader waits for a re-test of the broken support before entering a sell trade. If bulls are rejected at resistance, which is the former support, the price action drops lower and continues towards our take profit level. In this strategy, traders simply have to see an agreement between the support breakout and the Chaikin Money Flow reading. Once the descending triangle breakout happens, we need to have a Chaikin Money Flow reading below the -0.2 level.

Risk management modules allow stop-loss placement above recent swing highs, while liquidity indicators assess breakout validity. Margin calculators and pip-value estimators help set profit targets, a feature promoted by Forex trading brokers to optimize bearish trades. Forex, stock, cryptocurrency and commodity traders use the descending triangle pattern to capitalize on bearish market conditions by identifying when selling pressure is increasing. A price breakout below the support level signals a shift in market sentiment, indicating that selling pressure has overwhelmed buying interest. Traders commonly utilize the descending triangle pattern when they seek opportunities to capitalize on bearish market conditions and anticipate downside breakouts.

When a descending triangle reversal pattern appears at the bottom, the security’s price records multiple lower highs. The price will ultimately make an upside breakout from the bottom reversal pattern, which traders usually view as a signal to open a long position. Alternatively, the reversal pattern can also show up at the bottom end of a downtrend. In this case, the price action is usually flat after a downtrend, with the horizontal support level representing a price low. The descending triangle is a bearish formation that takes place after the price action consolidates between the descending trend line (resistance) and a horizontal line (support).

• An ideal validation of the pattern occurs when there’s a downside break with an expansion of volume for confirmation.
• The descending triangle’s height reflects the maximum distance the price has moved within the pattern.
• Also note that you will not always see a bullish signal from the EMA’s prior to the breakout.
• Traders can calculate the length of the descending triangle by measuring the angle between the pattern’s highest point and the flat support line.
• It forms when the price is making a series of lower highs and testing a horizontal support level multiple times.
• A descending triangle chart pattern is a bearish pattern that traders and analysts use in price action trading.

The theory is that despite the short-term stability, sellers still force the price below the support level due to their strength. After a breakout from a descending triangle, the target price is calculated by measuring the widest distance of the pattern and subtracting it from the breakout point at the resistance line. This provides an estimate of where the price could potentially go, but it’s important to remember that this is just a guideline and other technical analysis factors should be taken into account. Triangles reveal an opportunity to short and suggest a profit target, so both triangles are just different takes on a potential breakdown. Ascending triangles can also form at the reversal of a downtrend but are more commonly viewed as a bullish continuation pattern. On the other hand, the descending triangle can sometimes result in a failed breakout.

How is a descending triangle different from an ascending triangle?

Descending triangles are considered to be continuation patterns, meaning the price is expected to continue in the direction of the prevailing trend after the breakout occurs. As far as chart patterns are concerned, the descending triangle pattern is tremendously effective. The fact that its success rate is almost 73% easily solidifies the statement. Rising and falling wedges are a technical chart pattern used to predict trend continuations and trend reversals. In many cases, when the market is trending, a wedge pattern will develop on the chart…. Keep in mind that the descending triangle pattern is also know as a measured move chart pattern.

The descending triangle chart pattern is usually a bearish pattern formed by a series of lower highs and a horizontal support level. It forms when the price is making a series of lower highs and testing a horizontal support level multiple times. The pattern is created by connecting the support level with a horizontal line and joining the lower highs with a descending trendline. The descending triangle pattern clearly signals bearish trends, enabling traders to confidently anticipate downward moves. Yes, volume is significant to descending triangle formation as it confirms the strength of the bearish trend. The trading volume contracts as the descending triangle pattern forms and surges at the breakout below the support line, reinforcing the price movement.

This includes individual stocks, global indices, commodities, Forex, or cryptocurrency. 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. It’s akin to “following the smart money.” When you discern that institutional traders are leaning bearish, aligning with them can often lead to better trading outcomes. However, always remember that the descending triangle, like any pattern, isn’t foolproof, and other market factors and news can influence its outcome. Traders can measure the height of the ascending triangle at its widest point and project that distance upward from the breakout point to predict a potential target for the upward move. Mean Reversion Definition Reversion to the mean, or “mean reversion,” is just another way of describing a move in stock prices back to an average.

The success rate underscores the descending triangle pattern’s reliability in signaling continued downward movement when the price falls below the support level. The descending triangle pattern’s consistent formation provides traders with a clear visual indication of potential bearish market sentiment. The visual clarity allows traders to anticipate bearish trends and maximize their profits in declining markets. The descending triangle pattern’s characteristic narrowing price range highlights the intensifying tension between buyers and sellers. Each successive lower high reflects a weakening of buying strength as sellers continue to exert downward pressure. The descending triangle formation resolves when the price breaks below the horizontal support level.

At the same time, the lower trendline is horizontal and connects an area of support where the price is bouncing. Ascending predicts an upside breakout, while descending signals a potential downside breakout. Watch for periods of contraction with smaller trading ranges, signaling a potential descending triangle breakout.