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Descending Triangle Pattern

A descending triangle is a bearish continuation pattern formed during a downtrend. It has a horizontal lower trend line and downward sloping upper trend line that converge. Price consolidates in the pattern, making at least two minor lows and highs. The triangle contracts over time. It typically breaks downward, but can also break up. Statistics show it succeeds as a continuation pattern 54% of the time and the breakout move reaches the first profit target 54% of the time as well.

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Hammad Saeedi
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122 views

Descending Triangle Pattern

A descending triangle is a bearish continuation pattern formed during a downtrend. It has a horizontal lower trend line and downward sloping upper trend line that converge. Price consolidates in the pattern, making at least two minor lows and highs. The triangle contracts over time. It typically breaks downward, but can also break up. Statistics show it succeeds as a continuation pattern 54% of the time and the breakout move reaches the first profit target 54% of the time as well.

Uploaded by

Hammad Saeedi
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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A  descending  triangle  is  a  continuation  pattern  that  is formed after a bearish move in the price. 

It  is  formed  between  two  trend  lines  where  the  lower  trend  line  should  be  horizontal  and  the 

upper  trend  line  slope  down  and  meet  the  horizontal  trend  line  at  some  point. The descending 

triangle  starts  wider  like  a  usual  triangle  and  then  contracts  as  it  moves  towards  its  end. Price 

should  make  at  least  two 

minor  lows  and  two  minor 

highs  within  the  triangle. 

This  pattern  can  be  formed 

after  a  downtrend  and 

normally  it  breaks 

downward.  Although  it  can 

break upward as well but the 

odds  of  breaking  low  are 

higher than breaking up.   

One  of  the  major  reasons  for  this  formation  is  that  investors  take  the  initial  drop  as  a  buying 

opportunity  and  keep  buying  every  time  the  price  touches  the  initial  drop  low  price  which 

results  in  the  price  bouncing  from  the  same  low  again  and  again.  But  ultimately  price  breaks 

down as market makers want it cheaper before getting into it again. 

Let’s summarize the requirement of this pattern. 

● Pattern forms during a downtrend 

● Price consolidates between a flat and falling trend line 

● The pattern starts wider and contracts afterward 


● Price should make at least two minor lows and two minor highs 

● Volume decreases during the formation of the triangle and spikes up during breakout 

Statistics 

It  is  always  interesting  to  know  the past performance of the pattern to adjust your position size 

and  SL  accordingly.  A  study  suggests  that  54%  of  the  time  this  pattern  makes  a  bearish  exit 

and  61%  of  the  cases  this  pattern  works  as  a  price  continuation  pattern.  The  study  further 

suggests  that  54%  of  the  cases price reaches the first target after the breakout and 64% of the 

time  price  makes  a  pullback  on  the  trend  line.  False  upwards  breakout  ratio  is  only  6%  while 

50% of the time price breaks upward after a false breakdown. 

Trading Descending triangle 

As  the  descending  triangle  pattern  is  a  continuation  pattern  it  gives  you the ability to short the 

asset  after  its  breakdown.  You  can  enter  on  the  breakout  or  on  a  pullback  if  you  missed  the 

initial  chance  of  entering.  Your  first  profit  target  will  be  equal  to  the  size  of  the  triangle  as 

shown  in  the  chart  above.  You  can  use  Fibonacci  levels  to  measure  the  further  profit  targets 

and also make sure to place the stop loss above the upper trend line of the triangle.  

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