The descending triangle is a bearish formation that usually forms during a downtrend as a continuation pattern. There are instances when descending triangles form as reversal patterns at the end of an uptrend, but they are typically continuation. Regardless of where they start, descending triangles are bearish patterns that indicate distribution.
What Does a Descending Triangle Tell You?
Descending triangles are a trendy chart pattern among traders because it clearly shows that the demand for an asset, derivative, or commodity is weakening. When the price breaks below the lower support, it is clear that downside momentum is likely to continue or become even more vital. Descending triangles allow technical traders to make substantial profits over a brief period. Descending triangles can form a reversal pattern to an uptrend, but they are generally seen as bearish continuation patterns.
How to Trade a Descending Triangle
In a descending triangle chart pattern, most traders look to initiate a short position following a high volume breakdown from lower trend line support. In general, the price target for the chart pattern is equal to the entry price minus the vertical height between the two trend lines at the breakdown. The upper trend line resistance also serves as a stop-loss level for traders to limit their potential losses.