Descending Triangle
Candlefocus EditorA descending triangle is identifiable by two converging trend lines drawn on a chart. The upper trend line connects a series of lower highs, while the lower trend line connects a series of higher lows. This indicates that the highs are constantly being reached at a lower price and the lows are being reached at higher levels.
When the trend lines converge, the descending triangle is said to be complete and the price is likely to breakout lower in the immediate future. An trading signal is given to traders when the breakout occurs. The descending triangle is considered to be one of the strongest bearish continuation patterns and is often used by day traders and swing traders alike.
A descending triangle can be used to inform the entry and exit points of a trade. The entry point is typically when the break of the lower trend line is confirmed. This is followed by a sell (short) order. If the price action follows through and falls as expected, then the target price is determined by measuring the height of the triangle pattern and subtracting it from the breakout point. The stop loss is set at the top of the descending triangle where the breakout occurred.
The descending triangle pattern is not a surefire guarantee of success and there is always the risk of a false breakout. That being said, technical analysts rely on the pattern because of the high probability that a downside movement will occur after the breakout.