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Descending Triangle Pattern

The Descending Triangle is a bearish chart pattern characterized by a horizontal support line and a downward-sloping resistance line, indicating increasing selling pressure. It typically appears during downtrends and can signal either a continuation of the downtrend or a reversal from an uptrend. Successful trading involves entering short positions upon a confirmed breakout below the support level, with clear stop-loss and target price strategies.

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3 views5 pages

Descending Triangle Pattern

The Descending Triangle is a bearish chart pattern characterized by a horizontal support line and a downward-sloping resistance line, indicating increasing selling pressure. It typically appears during downtrends and can signal either a continuation of the downtrend or a reversal from an uptrend. Successful trading involves entering short positions upon a confirmed breakout below the support level, with clear stop-loss and target price strategies.

Uploaded by

raisoniya670
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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- PRATIK KULKARNI

Descending Triangle Pa ern

Let's dive into the "Descending Triangle" chart pa ern in depth. This pa ern is a bearish
con nua on or reversal pa ern, depending on the context of the preceding trend.

Descending Triangle Pa ern : Detailed Analysis


1. What is a Descending Triangle ?
The Descending Triangle is a chart pa ern that is typically seen during a downtrend, signaling
that selling pressure is increasing, and the price is likely to con nue moving lower. It is a bearish
pa ern that is formed by a horizontal support line and a downward-sloping resistance line.

 Shape : The price forms a series of lower highs while maintaining a flat support level.
The pa ern appears like a triangle, with one side sloping downward and the other
remaining flat.

 Trend Preceding : The pa ern o en appears during an exis ng downtrend or a er a


strong down move, as the market consolidates before poten ally con nuing the
downward movement.

2. Key Characteris cs of the Descending Triangle Pa ern


 Horizontal Support Line (Base) : This line represents a price level at which buyers
are consistently willing to enter the market, providing support. It is flat because the
support does not change significantly.

 Descending Resistance Line : This line connects a series of lower highs, indica ng
that selling pressure is gradually increasing and pushing the price downwards.

 Convergence : The two trendlines (support and resistance) converge toward each
other, and the price typically becomes compressed within the triangle.
- PRATIK KULKARNI

 Volume : During the forma on of the pa ern, volume o en decreases as the market
consolidates. A breakout (downward) is generally accompanied by a surge in volume,
confirming the breakdown.

3. Bearish Implica on :
The descending triangle is typically seen as a bearish con nua on pa ern when formed a er a
downtrend. It suggests that the downtrend will con nue once the price breaks below the
horizontal support line.

In some cases, it can also be a reversal pa ern when the market has been in an uptrend, and it
forms as a reversal point signaling that the uptrend is ending and a downtrend may begin.

4. How to Trade the Descending Triangle Pa ern


Entry :
 Short Posi on : The typical trade setup for a descending triangle is to enter a short
posi on when the price breaks below the horizontal support level. This indicates that
the selling pressure has overwhelmed the buyers, and the price is likely to con nue
downward.

 Confirma on : It's important to wait for the price to break below the support level
and confirm the breakout with an increase in volume. A small break with low volume
may signal a false breakdown, so confirma on is key.

Stop Loss :
 The stop loss is typically placed just above the descending resistance line (the trendline
connec ng the lower highs). This is because if the price reverses and breaks above this
line, it invalidates the pa ern and signals a poten al trend reversal.
- PRATIK KULKARNI

Price Target :
 The price target is typically es mated by measuring the height of the triangle at its
widest point (the ver cal distance from the highest point of the resistance line to the
lowest point of the support line).

o For example: If the height of the triangle is $10, and the price breaks below the
support at $50, the target would be $40 (measured by subtrac ng the triangle
height from the breakout point: $50 - $10 = $40).

5. Example of a Descending Triangle Breakdown Trade


Let’s break it down step by step with an example:

 Imagine a stock that has been trending downward from $80 to $60.

 The price then consolidates between a horizontal support at $60 and descending
resistance at $64, forming a descending triangle.

 A er a period of consolida on, the price breaks below the $60 support level with high
volume.

Trade Setup :
 Entry : Short at $59 (when the price breaks below $60 with high volume).
 Stop Loss : Place the stop loss at $65 (just above the descending resistance trendline).
 Target Price : Measure the height of the triangle, which is $10 ($64 - $60), and
subtract it from the breakout level. The target price is $49.
- PRATIK KULKARNI

6. Pros and Cons of Trading the Descending Triangle

Pros :
 Clear Entry and Exit Points : The support level offers a clear entry point for shorts,
and the descending resistance line can help set stop-loss levels.

 Predic ve of Con nua on : The descending triangle tends to be a reliable


con nua on pa ern during a downtrend, giving traders confidence in a bearish setup.

Cons :
 False Breakouts : As with all chart pa erns, there’s the risk of a false breakout. If the
price breaks below the support line but then quickly reverses, the pa ern can fail.

 Requires Confirma on : To avoid false breakouts, it’s crucial to confirm the


breakdown with an increase in volume, which may not always occur.

7. Real-World Example of Descending Triangle


Here’s a prac cal scenario:

 A stock has been in a strong downtrend, dropping from $100 to $70 over several weeks.

 It then forms a descending triangle with a horizontal support at $70 and a descending
resistance star ng around $75.

 The stock breaks below the $70 support at $69.50 with high volume, signaling a
con nua on of the downtrend.

Trade Setup :
 Entry : Short at $69.50 (breakout below $70 support).
 Stop Loss : Place a stop loss at $75 (just above the descending resistance).
- PRATIK KULKARNI

 Target : Measure the triangle’s height, which is $5 ($75 - $70), and subtract it from the
breakout point of $69.50. The price target is $64.50.

8. Addi onal Considera ons


 Volume Analysis : Volume plays a cri cal role in confirming the breakdown from the
descending triangle. A breakout with low volume could indicate a false move, while an
increase in volume adds confidence to the trade.

 False Breakouts : Be cau ous about false breakouts where the price temporarily
breaks below support but quickly reverses back into the pa ern. This can lead to a failed
trade, so using indicators like RSI or MACD to gauge momentum might help in confirming
the breakout direc on.

 Timeframe : The descending triangle tends to be more reliable when formed on longer
meframes (e.g., daily or weekly charts), as shorter meframes can result in false
breakouts or noise.

Conclusion
The Descending Triangle is a valuable chart pa ern that can help traders iden fy poten al
bearish con nua on setups, especially in a downtrend. Recognizing the forma on of the
pa ern, wai ng for confirma on through a breakout, and applying proper risk management
with stop losses and target prices can significantly improve trading success. By understanding
the mechanics of this pa ern and its implica ons, traders can make informed decisions when it
appears on the charts.

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