Descending Triangle Pattern: A Comprehensive Guide for Traders

The priority for a trader working in financial markets is profitable trading and investment. To earn a stable income, you need to correctly determine the beginning of a trend. According to most professionals, trading with the trend is the only effective way to maximize profits while minimizing risks.

However, it is not always easy to spot the beginning of a trend 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 the descending triangle formation. Below, you’ll learn how to identify descending triangles in the chart and trade them effectively.

What is a Descending Triangle?

A descending triangle is a bearish pattern that most commonly occurs in a downtrend. However, the formation can also emerge in a bullish trend, signaling a price reversal downward.

The pattern looks like a triangle with falling highs and a flat support level after a major downward movement. It typically appears on longer timeframes starting from H4.

The key feature of a descending triangle is its long construction, indicating weakening bullish momentum. When the pattern completes, the bears break through the lower border, and the price continues declining.

The descending triangle pattern is observed across financial markets, including stocks, Forex, cryptocurrency, and commodities.

Key Facts

A descending triangle is a bearish pattern that signals the continuation of a downward trend.

It is the opposite of the bullish ascending triangle pattern.

It provides clear entry and exit rules, helping traders define potential profit targets and stop-loss levels.

In a bullish trend, a descending triangle can warn of an imminent trend reversal.

Differences Between Descending and Ascending Triangles

Descending Triangle: Forms in a bearish trend, featuring a flat support line and a descending upper trendline as the highs lower.

Ascending Triangle: Forms in a bullish trend, featuring a horizontal resistance line with rising lows.

While ascending and descending triangles generally indicate price direction, symmetrical triangles are less predictable, as they can break out in either direction.

What Does a Descending Triangle Tell You?

A descending triangle signals decreasing demand for an asset and growing selling pressure. The pattern typically forms with declining trading volume, followed by a breakout of the support line and a return of volatility.

After the breakout, the price often continues its downward momentum, making it an opportunity for traders to enter short positions and profit from the decline.

How to Identify a Descending Triangle Pattern

The descending triangle pattern is characterized by:

Occurring most commonly in a downtrend, signaling continuation.

A flat support line formed by lows staying at the same level.

Lowering highs within the range, forming a descending trendline.

The flat support and descending trendline meeting at one point, forming the triangle.

Occasionally, a descending triangle appears at the high of a bullish trend, signaling a reversal to a downtrend.

Measuring a Descending Triangle

To determine a potential profit target:

Measure the vertical distance from the highest point to the support line.

Project this distance downward from the breakout point of the support line.

Alternatively, measure the distance from the highest point to a horizontal line drawn at the support level and use it to calculate the target.

How to Trade a Descending Triangle

Look for the descending triangle pattern in a downtrend, preferably on longer timeframes like H4 or daily charts.

Confirm the pattern with a sloped trendline from the highs and a flat support line.

Define the potential profit using the measurement technique.

Enter a short position after the price breaks below the support line and consolidates.

Place a stop loss above the most recent high on the trendline.

Descending Triangle Trading Strategies

1. Breakout Strategy

This involves entering a short trade after a clear breakout of the support level. The profit target is determined by the height of the triangle, and a stop loss is placed above the support level.

2. Heikin Ashi Charts

Using Heikin Ashi candles can help filter market noise and provide clearer signals. A breakout accompanied by red Heikin Ashi candles and increasing volumes confirms the bearish trend.

3. Moving Average Strategy

Combine the descending triangle with a moving average crossover (e.g., 10-day and 20-day SMAs) to confirm bearish momentum. A "death cross" within the triangle strengthens the sell signal.

4. Reversal Pattern at the Top

When a descending triangle forms at the high of a bullish trend, it indicates weakening buying pressure and a potential reversal to a bearish trend.

5. Reversal Pattern at the Bottom

Rarely, a descending triangle can form at the low of a bearish trend, signaling an upward reversal. This pattern allows traders to open long positions if the price breaks above the resistance line.

Conclusion

The descending triangle is a bearish chart pattern with clear entry, exit, and profit calculation rules. While it often signals trend continuation, it can also indicate potential reversals at the top or bottom of a trend.

Understanding and mastering this pattern can enhance your trading strategy, helping you identify profitable opportunities while minimizing risk.