A preceding trend, or downtrend, takes several months to build and frequently starts to take shape several months before the breakout. The success rate of a triangle pattern is 67% for ascending and symmetrical triangles and 68% for descending triangles, according to Thomas Bulkowski’s what is a descending triangle Encyclopedia of Chart Patterns. The success rate of the triangle pattern increases with strong volume and trend confirmation.

Lecture 17: Psychology for SMC Traders – How to Think Like Smart Money & Avoid the Retail Mindset

In the following example, we’re going to combine the descending triangle with the power of technical indicators. Imagine that, at the top of the descending triangle chart pattern, there is a downtrend composed of a series of lower highs that are connected by a trend line sloping downwards. At the bottom, there is a solid floor of support that is tested at least 3-4 times. The support level is the bottom from where the price couldn’t push any lower. A recent real-world example of a descending triangle pattern can be seen in the price chart of Bitcoin (BTC) from June to July 2021.

Swing Trading Signals

After defining the price movement, the indicated segment is superimposed from the lower support line downwards. The endpoint will be the potential take profit level for the trade entered according to the descending triangle pattern. The buyers may not be able to break through the supply line at first, and they may take a few runs at it before establishing new ground and new highs. The chartist will look for an increase in the trading volume as the key indication that new highs will form. An ascending triangle pattern will take about four weeks or so to form and will not likely last more than 90 days.

Key Characteristic of Descending Triangle Pattern

A triangle chart pattern formed during stable market conditions is an accurate indicator of the potential price movement as it will result in a successful breakout in the direction of that trend. The triangle pattern’s accuracy reduces during unstable market conditions, as there is no dominant force, bullish or bearish, to drive the breakout. Yes, triangle patterns are effective tools in technical analysis, as they help identify potential breakout points during periods of consolidation. The triangle pattern’s effectiveness relies on clear trendlines and volume confirmation and is heightened when combined with other indicators, such as volume analysis or momentum indicators. The triangle pattern’s advantages include clear entry and exit points and the ability to identify trend continuations or reversals.

• To confirm the move, traders should watch for a significant volume spike during the breakout.
• One of the best brokers in the market — LiteFinance — will help you put your acquired knowledge into practice.
• At Chart Champions, we cover triangle patterns in detail, including how to identify, trade, and avoid common traps.
• A break below the support line usually signifies the continuation of a downturn as the price tightens within the triangle.
• The pattern is typically interpreted as an indication of a potential market reversal and trend change if it occurs during a long-term uptrend.

Consequently, having broken the support line, the price should decline for the vertical distance of the triangle’s height. Based on technical analysis, trading volume decreases during the descending triangle construction. 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. Supply and demand trading strategy focuses on the imbalance between buyers and sellers within the descending triangle structure.

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. During this period of indecision, the highs and the lows seem to come together at the point of the triangle with virtually no significant volume. Let’s look at an example of a day trading opportunity to catch a reversal using the descending triangle on an intraday time frame. In this article, we’re going to explain the requirements of the descending triangle and how to spot it in real time. We’re also going to cover the psychology behind the descending triangle reversal.

Ascending Triangle

A breakout accompanied by low volume indicates a lack of conviction in the price movement. A strong volume during the breakout phase enhances the descending triangle pattern’s accuracy, ensuring that the downward trend is supported by robust market sentiment. When the price remains consistently below the 50-day moving average during the formation of the descending triangle pattern, it indicates sustained selling pressure.

What Does the Descending Triangle Mean – What Does it Tell Us About the Market?

A triangle pattern works by forming between two converging trend lines with at least two touch points on each side to define valid support and resistance levels. The triangle chart pattern’s shape requires appropriate trendline angles, not too steep or shallow. Volume decreases during formation and spikes at breakout, signaling strength. Longer time frames suggest greater breakout potential, with the triangle’s height used to set target prices.

Additionally, a potential breakdown below the support level signals a bearish breakout, prompting them to sell or take short positions. The pattern completes itself when the stock price breaks out of the support level and continues to fall. You can use descending triangle patterns to anticipate potential price declines. Once the pattern is confirmed by a breakout (ideally accompanied by an increase in volume), this can be a signal to consider selling or shorting the security. The pattern usually forms at the end of a downtrend but can also occur as a consolidation in an uptrend. A regular descending triangle pattern is commonly considered a bearish chart pattern with an established downtrend.

It involves an anticipation of a breakout from the descending triangle pattern. This strategy uses a very simple combination of trading volumes and asserting the trend, which can be used to capture short term profits. The strength of the breakout can be verified by combining the descending triangle with moving averages, such as the 50-day or 200-day moving average.

• It forms during a downtrend as a continuation pattern, characterized by a horizontal line at the bottom formed by comparable lows and a descending trend line at the top formed by declining peaks.
• There should be an established trend, although the length and duration of the trend isn’t as important as the robustness of the formation.
• Along those lines, the moving average indicators serve the purpose of triggering the signal to initiate a trade.
• In our footprint charts guide, we also go over strategies you can use when trading triangle setups — from spotting absorption to identifying healthy breakout conditions and more.
• The principle of constructing a descending triangle in a bullish trend is the same as in a downward trend.

In late April 2000, the stock broke support with a gap down, sharp break, and increase in volume to complete the formation. In contrast to the symmetrical triangle, a descending triangle has a definite bearish bias before the actual break. The symmetrical triangle is a neutral formation that relies on the impending breakout to dictate the direction of the next move. The key lines that make up the triangle should align with former price points that acted as support and resistance on prior swings and cycles. The first step is to identify the chart pattern, the second step is to find the required trendlines, the third step is to monitor the breakout, and finally open a position following the breakout.

Subsequently, price action eventually breaks to the upside from the descending triangle reversal pattern at bottom. Unlike the strategy mentioned previously, in this set up, you can trade long positions. Traders regard it as one of the most reliable and successful trading patterns. It has an accuracy of 79% in predicting a downtrend with an average price decline of 16%. Triangle patterns are reliable when the price movements are predictable during periods of low volatility since their reliability is affected by market volatility. Traders encounter false breakouts when the market experiences rapid price fluctuations, as the price might temporarily breach the triangle’s boundaries before reversing the direction.

This pattern forms as sellers consistently lower their asking prices, forming a descending resistance line, while the support level remains flat. The pattern indicates decreasing buying pressure and a potential breakdown below the support line. A breakdown, often confirmed by a surge in volume, suggests a further decline in price.

The visual clarity allows traders to anticipate bearish trends and maximize their profits in declining markets. Traders commonly utilize the descending triangle pattern when they seek opportunities to capitalize on bearish market conditions and anticipate downside breakouts. The descending triangle pattern helps traders identify mounting selling pressure and potential breakdowns below support, guiding their descending triangle trading strategies.