The Descending Triangle Pattern 

What It Is ?

The Descending Triangle is a pattern drawn on trading charts. It simply consists of two lines: 

• A downward-sloping upper line: connecting progressively lower price highs. 

• A horizontal (straight) lower line: connecting price lows that remain stable at one level. 

This pattern is often a signal for the continuation or initiation of a downtrend. In other words, it indicates that the price will move downwards. However, it’s important to note that sometimes the price might break upwards (creating a reverse breakout) unexpectedly, in which case the triangle becomes a bullish reversal signal. 

Rules for Trading the Descending Triangle 

Like other chart patterns, this pattern has clear rules for opening and closing trades: 

Entry Point (for Sell Trades) 

A Descending Triangle indicates that sellers are in control. Therefore, your goal is to sell when the price breaks below the triangle’s lower support line.  

When to sell? 

Immediately: After the breakout candle closes below the lower line. 

After Confirmation: Wait for a few additional candles to confirm that the price has stabilized below the line. 

How to Avoid False Breakouts? 

Triangles are not 100% guaranteed. To confirm that a breakout is genuine and not false: 

• Monitor Trading Volume: A true breakout is accompanied by a significant increase in selling volume. Without this increase, the price might revert. 

• Use Supporting Indicators: 

• Moving Averages (SMA): If the shorter average (e.g., 20-day) is below the longer one (e.g., 50-day), this reinforces the downtrend. 

• MACD Indicator: Look for a MACD line crossover below the signal line; it provides strong confirmation of the bearish signal. 

• Relative Strength Index (RSI): If the indicator drops below 50, this confirms bearish momentum. 

Taking Profits 

The rule is simple: measure the largest vertical distance (triangle height) between the upper and lower lines of the triangle. 

Where to set the target? Place the profit target at the same distance, starting from the point where the price broke below the lower line. This is where you expect the price to reach. 

Stop-Loss 

To protect your capital, place a stop-loss order directly above the triangle’s lower support line (the line the price broke).  

This ensures you exit the trade with a small loss if the pattern fails and the price returns inside the triangle or reverses upwards. 

Risk-Reward Ratio: Traders often prefer the profit target to be greater than the potential risk (e.g., risking one dollar to gain two or three dollars). 

How the Descending Triangle Breakout Strategy Works 

This strategy relies on anticipating the price breaking below the Descending Triangle pattern. It is designed to help you achieve quick profits by combining: 

• The power of trading volume. 

• Trend confirmation signals. 

When a stock is in a clear downtrend or in a consolidation phase (sideways movement), traders begin to observe the triangle forming through lower highs and lower lows. This is the right time to apply the strategy. 

Integrating Descending Triangle with Heikin Ashi Candles 

Heikin Ashi candles simplify price action and show trends more clearly.  

How they help? While the Descending Triangle forms, observe the Heikin Ashi candles. Sometimes, the candles show a temporary upward trend before the final breakout (usually bearish). This signal from Heikin Ashi can give you deeper insight into momentum before the big move. 

Integrating Descending Triangle with Moving Averages 

Moving averages show the average price of an asset over a period and help identify the trend.  

How they help? Use the Descending Triangle to anticipate the breakout. Then, when moving averages give a signal confirming this breakout (e.g., when the price crosses below a moving average), this provides additional confirmation to enter the trade. 

Reversal Descending Triangle / At the End of an Uptrend (Bearish Expectation) 

This pattern appears when the price is in a strong uptrend and then begins to form a Descending Triangle. It is observed that new price highs have become weak and limited, often accompanied by a decrease in trading volume. 

The pattern indicates that buying power has started to weaken and the uptrend may have reached its end. The price is expected to break below the triangle to initiate a new downtrend. 

Reversal Descending Triangle / At the End of a Downtrend (Bullish Expectation) 

This pattern appears at the end of a strong downtrend, where the price struggles to fall further. You observe this through a strong horizontal support line that prevents the price from falling further. 

If the price breaks above the triangle (contrary to expectations), this is a very strong signal that the trend will reverse to an uptrend. This is an excellent time to consider buy trades. 

Descending Triangle vs. Ascending Triangle 

Both the Descending Triangle and Ascending Triangle are continuation patterns that help you understand market movement, with some differences: 

• Descending Triangle: 

Characterized by a horizontal lower line connecting the lows, and a downward-sloping upper line connecting the highs. 

Often indicates that the price will continue to fall, or will begin to fall, and is a selling opportunity. 

• Ascending Triangle: 

Characterized by a horizontal upper line connecting the highs, and an upward-sloping lower line connecting the lows. 

Often indicates that the price will continue to rise, or will begin to rise, and is a buying opportunity. 

Key Similarity:  

Both triangles indicate a potential profit target that can be measured after the price breaks the pattern. They simply offer you two different perspectives on the probabilities of future price movement. 

Note: While the Ascending Triangle is usually a bullish signal, it can sometimes indicate a trend reversal from bearish to bullish if it appears at the end of a downtrend. 

How the Descending Triangle Pattern Forms 

This pattern shows a struggle in the market and usually ends with a price decline. It consists of: 

• Horizontal Lower Line: This line represents a strong support level where the price attempts to stop falling. In other words, lows are forming at roughly the same price. This shows that buyers are trying to defend this price. 

• Downward-Sloping Upper Line: This line connects successive highs, each becoming lower than the previous one. This indicates that sellers are gaining more control and are accepting lower selling prices each time. 

What Does This Formation Mean? 

As the triangle forms, you notice that the price bounces upwards from the lower line, but each bounce is weaker than the last. This indicates that sellers are gradually gaining strength; they are willing to sell at lower prices, which increases selling pressure on the stock or asset. 

The price continues to oscillate within this gradually narrowing triangle until selling pressure becomes large enough to break through the lower line (support). When this support is broken, the price usually accelerates its descent, and this broken support level then turns into a resistance level, preventing the price from rising again. 

Key Advantages of the Descending Triangle Pattern in Trading 

1. Predictive Power: This pattern is known for its good success rate in predicting future price movement. This gives you greater confidence in your trading decisions. 

2. Ease of Identification and Planning: The shape of the Descending Triangle is very easy to identify on the chart. It helps you accurately determine entry and exit points, making it easier to measure potential risks versus expected profits. 

3. Reduces Emotional Decisions: Thanks to its clear points, this pattern helps you make trading decisions based on analysis rather than emotions or guesswork. 

4. Pre-defined Profit Target: Once the pattern forms, you can identify a clear profit-taking target. 

5. Enables Trading Within the Pattern: For more experienced traders, it’s possible to trade within the triangle’s boundaries itself (before the major breakout), which offers additional opportunities, while prioritizing the bearish breakout. 

Limitations of Using the Descending Triangle Pattern 

1. False Breakout: The price may “pretend” to break out of the triangle, then quickly return. This can lead to unexpected losses if you enter the trade early without sufficient confirmation. 

2. Lack of Clarity: Instead of clearly defining its direction, the price may remain oscillating sideways within the triangle for a long time, or its volatility may increase without a clear direction. This makes decision-making difficult, wastes your time, and can lead to unprofitable trades. 

3. Doesn’t Move as Expected: Sometimes a Descending Triangle forms, but the price simply doesn’t fall (or rise in reversal cases) as expected.  

This carries the highest degree of risk, as entering a trade based on a false expectation, without a proper stop-loss order, can cause significant losses. 

Tip: Before relying on the Descending Triangle, conduct a very precise analysis and manage risk wisely before any trade (such as setting an appropriate stop-loss) to protect your capital. 

Other Major Types of Triangle Chart Patterns 

Ascending Triangle 

The Ascending Triangle is a strong pattern that usually indicates the continuation of an uptrend. Its shape is very distinctive: 

• Upward-Sloping Lower Line: Connects progressively higher lows. This shows that buyers are gaining strength. 

• Flat (Horizontal) Upper Line: Acts as a strong resistance area, where the price repeatedly reaches it but fails to break through. 

How to Identify and Trade It: 

– Identify the Trend: First, ensure that the price is moving in a clear uptrend. 

– Look for the Shape: Look for gradually rising lows and equal highs. 

– Wait for the Breakout: The price will oscillate within the triangle. When the price breaks above the flat upper line, this is a very strong signal that the uptrend will continue strongly, and it is the ideal moment to enter a buy trade. 

Symmetrical Triangle 

The Symmetrical Triangle is a chart pattern that indicates indecision in the market between buyers and sellers before the price decides to move in a specific direction. Its shape is symmetrical: 

• Downward-Sloping Upper Line: Connects decreasing highs. 

• Upward-Sloping Lower Line: Connects increasing lows. 

How to Identify It:  

The triangle gradually narrows, showing that both buyers and sellers are exchanging control without either gaining full dominance. The price is confined within an increasingly tighter range. 

How to Trade It:  

This pattern does not indicate a specific direction beforehand (bullish or bearish).  

Traders wait for the price to break either of the triangle’s lines (upwards or downwards) to determine the new direction. An upward breakout means an ascent, and a downward breakout means a descent. 

In conclusion, the Descending Triangle is not a guarantee, but like any technical analysis tool. It becomes more powerful when combined with other tools, and when you adopt a disciplined mindset in risk management. 

To master this pattern, focus on continuous practice, learn from every trade, and do not hesitate to use confirmations. By doing so, you will turn the Descending Triangle into a strategic ally in your quest for more accurate and profitable trading. 

Please visit naqdi’s blog for more information on the tools used in financial market analysis.