In this article, We learn about "Descending Triangle ".Let's Go!
A Descending Triangle is a bearish chart pattern used in downtrending markets, formed by a series of lower highs and lower resistance levels.
Descending triangle consists of two trendlines, one representing high prices and the other representing low prices.
The upper trendline of the
triangle is the downtrend line, and the lower trendline is the horizontal trendline.
The final shape is a right triangle with the hypotenuse moving down over time.
The chart above depicts perfect conditions for a descending triangle to form. However, finding a perfect triangle is rare, so in most cases both trend and resistance lines are pierced by false breakouts. The support line can also be slightly inclined.
As the price falls, keep looking for resistance at a certain level and recover some of your losses.
The subsequent retracement is shorter than the previous retracement, which creates a series of lower highs.
Lower highs indicate that more and more sellers are gradually entering the market as they are willing to accept lower prices in order to open short positions.
This creates selling pressure as the price consolidates towards the top.
The price at the upper trendline continues to fall, shrinking the triangle pattern until it breaks the support level represented by the lower trendline.
As prices are consolidating a bearish bias, traders need to be wary of an imminent breakout of support levels.
When a support level is broken, it becomes a resistance level, confirming the overall downward trend of asset prices over time.
Such breakouts may be based on technical analysis and/or caused by news flow, so it is also worth considering relevant fundamentals and market sentiment when using this pattern.
In order to confirm a descending triangle on an asset's chart, a trader must look for two reaction lows of similar magnitude and two reaction highs, each of which the price has declined over time.
There should be a reasonable distance between each low or high.
Descending triangles are often considered a bearish continuation pattern. However, this is occasionally observed during an uptrend, in which case a major trend reversal may occur.
This pattern is also somewhat contradictory in terms of breakouts, as the escape from the descending triangle can happen in either direction.
Breakouts to the downside are statistically more likely, but breakouts to the upside seem more reliable.
In upward breakouts, the best ones to look for are those that occur after the gap . A larger gap seems to give the price less chance of falling back into the triangle.
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