Descending triangle — clear, practical explainer
Definition
– A descending triangle is a price-chart pattern used in technical analysis. It is drawn by connecting a series of lower highs with a downward-sloping trendline and connecting a series of similar lows with a horizontal support line.
– Key terms: trendline (a straight line that connects price points to show direction), support (a price level where buying tends to appear), resistance (a price level where selling tends to appear), breakout (price moving above resistance) and breakdown (price moving below support).
Key takeaways (short)
– Usually viewed as a bearish continuation pattern: the pattern shows weakening demand as highs keep falling while a support level holds.
– Can act as a reversal: if price breaks above the descending trendline, the move may become bullish.
– Common trading plans: enter short on a confirmed breakdown, or enter long on a confirmed upside breakout; set stop-losses and measure profit targets from the pattern’s height.
How to identify a descending triangle (step-by-step)
1. Locate several lower highs that can be connected by a single downward-sloping line (upper trendline).
2. Find a roughly horizontal line that touches two or more lows (support).
3. Confirm the price is compressing between those two lines (the triangle shape).
4. Prefer patterns where volume declines during formation and expands on the subsequent breakout or breakdown.
Trading approaches — practical steps
– Short-on-breakdown (most common):
1. Wait for a decisive close below the horizontal support (prefer higher volume).
2. Enter a short position after the close or on a pullback that confirms the breakdown.
3. Place a stop-loss above the upper trendline (or above the most recent lower high).
4. Set a profit target using the measured-height method (see example).
– Buy-on-upside-breakout:
1. Wait for price to close above the descending upper trendline with supporting volume.
2. Enter long if breakout confirms and momentum indicators agree.
3. Place a stop-loss below the support line or below the breakout candle’s low.
– Confluence strategies:
– Heikin-Ashi candles: use these smoothed candles to help spot trend shifts; a change to bullish Heikin-Ashi candles before price clears the upper trendline can be an extra signal.
– Moving averages: use a crossover or a price break above a moving average (e.g., 20–50 MA) for additional confirmation of an upside breakout or trend change.
Descending triangle breakout strategy (measured target)
– Measured-height target: target = breakout price (or breakdown entry price) minus (vertical height of triangle at its widest point).
– Stop-loss: set above the upper trendline (for shorts) or below the support/breakout candle (for longs).
– Volume: prefer breakouts or breakdowns with volume expansion; thin-volume moves are more likely to fail.
Worked numeric example
– Setup: upper trendline at $50, horizontal support at $40. Vertical height = $50 − $40 = $10.
– Scenario A — Breakdown (bearish):
– Price closes below support at $39; trader enters short at $39.
– Target = entry − height = $39 − $10 = $29.
– Stop-loss = above recent lower high; for example, set at $46.
– Scenario B — Upside breakout (bullish reversal):
– Price closes above the upper trendline at $51; trader enters long at $51.
– Target = entry + height = $51 + $10 = $61.
– Stop-loss = below breakout candle low; for example, $48.
Descending triangle as reversal vs. continuation
– Continuation: appears during a downtrend, signaling likely further decline if support is broken.
– Reversal: if it forms at the end of a downtrend and price breaks above the descending trendline, it can mark a trend change to the upside.
How this differs from similar patterns
– Descending triangle vs. ascending triangle: descending triangle has a flat lower support and descending upper resistance; ascending triangle is the mirror (flat top resistance, rising lower support) and is typically bullish.
– Descending triangle vs. falling wedge: a falling wedge has both trendlines sloping downward and converging; wedges often signal a bullish reversal even when formed during declines, while descending triangles more often signal continuation to the downside.
Limitations and risks (checklist)
– False breakouts/breakdowns can occur; use volume and confirmation closes to reduce false signals.
– Subjectivity: drawing trendlines can differ between traders; re-draw if price action requires it.
– Multiple retests of support or resistance increase reliability; one-touch patterns are weaker.
– Market context matters: news, macro events, and liquidity can overwhelm chart signals.
Quick checklist before trading a descending triangle
– Does the pattern have at least two touches on support and two on the descending trendline?
– Is volume declining during formation and rising at breakout/breakdown?
– Do other indicators (momentum, moving averages, Heikin-Ashi) agree with the directional signal?
– Is risk:reward acceptable with a defined stop-loss and target?
– Is there any imminent news or event that could invalidate technical signals?
Sources for further reading
– Investopedia — Descending Triangle: https://www.investopedia.com/terms/d/descendingtriangle.asp
– StockCharts — ChartSchool: Triangle Patterns: https://school.stockcharts.com/doku.php?id=chart_analysis:triangle_patterns
– TradingView — Ideas & Education on Chart Patterns: https://www.tradingview.com/ideas/chartpatterns/
– CMT Association — Technical Analysis resources: https://cmtassociation.org
Educational disclaimer
This explainer is for education only and not personalized investment advice. Trading involves risk and you may lose capital; test strategies with paper trading and consider consulting a licensed financial professional before making trading decisions.