What Is A Descending Triangle?
A descending triangle is a technical analysis bearish price chart pattern that forms on the price charts of markets usually during a downtrend. It signals that the price of the market will potentially decline after the price breaks down from the pattern.
The descending triangle chart pattern most commonly forms as a bearish continuation pattern signaling a continuation in the bearish price trend.
However, it can also form as a price reversal pattern at the end of a bullish trend signaling a reversal from bullish to bearish price action.
Descending Triangle Components
In order to identify a descending triangle chart pattern, there will need to be certain components displayed on the price chart.
The components of a descending triangle pattern are:
- A lower horizontal support level: The horizontal support level connects the swing low levels together. It is this area where short trades will be entered when the price breaks down from this level.
- A descending/declining resistance level: The declining resistance level connects the decreasing swing high levels together. This level is typically where stop-loss orders are placed for short trades.
Drawing a descending triangle involves combining these two levels of the horizontal support and the declining/descending resistance level together.
Descending Triangle Chart Pattern Examples
Below are visual examples of descending triangle chart patterns.
Example Of A Descending Triangle Pattern As A Continuation Pattern
In the above price chart of Groupon stock, a descending triangle formed.
It signaled a continuation in the already established bearish price trend.
This is an example of a descending triangle as a continuation pattern i.e. it signals that the market will continue in the same direction as the bearish trend.
Example Of A Descending Triangle Pattern As A Reversal Pattern
In the above price chart of Wayfair stock, a descending triangle formed at a market top.
After the price breaks down from the pattern, it signals a price reversal from a bullish trend to a bearish trend.
This is an example of a descending triangle as a price reversal pattern i.e. it signals that the market price action is changing from bullish to bearish.
Example Of A Descending Triangle Pattern In The Stock Market
In the above price chart of the S&P500 index, a descending triangle formed on the daily chart in 2008.
It results in a large bear market after the price breaks down from the pattern.
This is an example of a descending triangle in the stock market.
Example Of A Descending Triangle Pattern In The Cryptocurrency Market
In the above price chart of Ethereum, a descending triangle forms. It signaled a fast and sharp price decline after the price broke below the horizontal support level.
This is an example of a descending triangle in the cryptocurrency market.
Descending Triangle Pattern Timeframes
A descending triangle can form on any timeframe price chart in the financial markets.
Popular timeframes that traders use to trade descending triangle patterns include:
- 1-minute price charts: Scalpers and high-frequency traders will use the 1-minute price chart to find and trade descending triangles.
- Hourly price charts: Day traders will use hourly price charts to find day trading opportunities using descending triangles.
- Daily price charts: Swing traders will typically use daily price charts to find swing trading opportunities with descending triangle patterns.
How To Find Descending Triangle Patterns
The methods for finding descending triangle chart patterns are:
- Use descending triangle pattern scanner: Use a descending triangle pattern software scanner to automatically find all the descending triangles in the market.
- Manually browse price charts: Manually browse through the price charts and try to find these descending triangle patterns forming.
- Browse expert’s Twitter feeds: Use the Twitter accounts of chartered market technicians and traders to find descending triangles in various markets.
- Read chart pattern newsletters: Use trading and technical analysis newsletters to help find descending triangle chart patterns.
Descending Triangle Pattern Benefits
The benefits of the descending triangle chart pattern are:
- It helps capture large bearish trends: A descending triangle can help traders capture potentially a large bearish price move lower.
- It offers a high reward to risk ratio: Descending triangles can offer a high reward to risk ratio, in many cases risking $1 to make $3+.
- It can be applied in any market: Descending triangles can be used in any market and are not limited to just one.
- It can be applied on multiple timeframes: Descending triangles can be used in any timeframe which means both day traders and swing traders can trade using the pattern.
Descending Triangle Pattern Limitations
The limitations of the descending triangle chart pattern are:
- There can be many false breakdowns : The price of a market can break down of the descending triangle and bounce back above the support level many times before the real breakdown to lower prices occurs.
- The pattern doesn’t always breakdown: The descending triangle pattern doesn’t always result in a breakdown from the support level. Instead, it can result in choppy, sideways and rangebound price action. This can annoy newer traders.
Descending Triangle Formation Duration
The length of time a descending triangle takes to form will depend on the timeframe of the price charts.
For example, on a 1-minute price chart, it will typically take an average of 30 minutes to 1 hour for a descending triangle to form.
On an hourly price chart, it will typically take approximately 30 hours to 60 hours for a descending triangle to form.
On a daily price chart, it will typically take approximately 20 days to 40 days for a descending triangle to form.
On a weekly price chart, it will typically take approximately 20 weeks to 30 weeks for a descending triangle to form.
Frequently Asked Questions About The Ascending Triangle Patterns
Below are frequently asked questions about the descending triangle chart pattern.
Is A Descending Triangle Pattern A Bullish Or Bearish Signal?
A descending triangle is a bearish signal in the market. A descending triangle pattern suggests that the price of the market may decline further upon completion of the pattern.
Where Is The Short Point Of A Descending Triangle Pattern?
The short entry point of a descending triangle is when the price of the financial market breaks down below the horizontal support level. The short entry point is the price just below this horizontal support level.
What’s The Difference Between A Descending Triangle And An Ascending Triangle?
The differences between a descending triangle and an ascending triangle are:
- It’s shape: A descending triangle has a horizontal support level and a declining resistance level whereas an ascending triangle has a horizontal resistance level and a rising support level.
- What it signals: A descending triangle signals potential future bearish price trends whereas an ascending triangle signals potential future bullish prices.
