Descending triangle patterns are a bearish pattern. They have three or more previous support levels that form a flat bottom. They also have lower highs that form, causing a bearish trendline. Look for the price to fail at the base of the triangle. You’ll have bearish confirmation if price action retests the base and fails.
What Is a Descending Triangle Pattern?
A descending triangle pattern consists of several candlesticks that form a sloping top and at least two to three previous low levels that form a flat bottom due to horizontal support. The sloping top is formed using trend lines connecting at least two to three lower highs. Descending triangle patterns are bearish chart patterns. Descending triangles are formed by drawing trend lines that connect to form the triangle pattern.
This triangle pattern forms a continuation pattern during a downtrend. This is a popular trend amongst traders. Hence, it clearly shows that demand for the stock is weakening.
This is an example of a descending triangle. Traders would enter a short position once the price fails the base of the triangle and place their stop at the top of the previous angular resistance.
Descending Triangle Basics
Descending triangle patterns have two trend lines that connect lower highs and a group of lows. Watch for the move below the lower trend line, which is support. It’s telling you that downward momentum is building.
A breakdown for that stock is about to happen. Once that breakdown occurs, traders can short the stock, making it fall even lower.
Not all brokers have shares to short, so have an account with a broker such as Interactive Brokers. Getting into options can be a good move to play both sides of the trade from puts. Put options take the short side of things.
Technicals
Trend lines are important to trading triangle patterns. A trend must be established for a continuation pattern, like descending triangle patterns, to be confirmed.
Being a bearish trend, the duration and length are less important than the strength of the pattern formation. The lower horizontal trend line needs at least two lows to retain, thus forming the line.
The lows should be close together. There must be some distance between the lows and a reaction between them.
The upper descending trend line needs at least two highs to form the line. These highs need to be lower than the previous highs, with some distance between them. The DT is no longer valid if the most recent high is the same or higher than the previous high.
Descending Triangle Pattern Trading Strategy
- Watch for a descending triangle by connecting at least two to three sloping peaks.
- Connect at least two to three previous lows via horizontal price lines.
- Once the price breaks down out of the base of the flat bottom and holds, take a short entry.
- Use a candlestick close midway above the upper trend line as your stop.
Descending Triangle Pattern Example
This is a descending triangle example on a daily chart of $CAT. You’ll notice that this pattern took several months to form. The base had a fake-out at first before creating another base level at the previous support. That’s when the pattern broke down. Once the price fails, the support level traders would enter a short position and use the angular resistance as a stop level. The first peak level was a shooting star reversal warning.
Ideally, you’d like to see at least three declining peaks and three or more support levels to form the base. However, that won’t always happen. Sometimes, you might only get two, which is okay. What matters is watching the support and resistance levels to see if they hold or fail. At times, they might look like a falling wedge pattern, too. This is where it’s important to watch if the price breaks out of the angular resistance area.
This is an example of a descending triangle on a 1-hour chart of $FB. The base formed a triple bottom when the price bounced to angular resistance. Preceding the DT was a falling wedge pattern. That formed the first support level. Then, the price reversed and formed a rising wedge pattern. The indicator on the chart is the Ichimoku cloud.
Descending Triangle Breakout
The picture above is a daily chart of $COIN. It formed at the bottom of a long downtrend. This descending triangle looks like a wedge, and you’ll notice that there were only two peaks that formed angular resistance; however, it was still showing bearishness.
On the other hand, three support levels were touched, signaling a triple bottom or inverse head and shoulders pattern. Many times, these bottom patterns will form the base. That’s why it’s important with the descending triangle to pay attention to the angular resistance levels.
In this example, the price ended up breaking out, but you’ll see a bit later that the breakout failed and came back to retest the previous resistance level.
Final Thoughts on Descending Triangle Pattern
Patterns can help, but they are not 100% accurate and should be combined with other trading tools. TrendSpider is a helpful tool that has a scanner called Pattern Recognition. This can be used as a guide to help you find these patterns and get comfortable seeing what they look like on charts. ThinkorSwim has a decent scanner, too. However, it’s not as sophisticated as TrendSpider, but it is free.
When the stock breaks out of the descending triangle, the support (lower horizontal trend line) becomes resistance; trend lines turn into key support and resistance areas. The stock will most likely go back up to test that resistance level before continuing its move down. Always remember that patterns can break down and reverse at any time. Please be sure to use proper risk management techniques when trading a descending triangle pattern.
Frequently Asked Questions
A descending triangle is typically a bearish pattern, but can become bullish. It becomes bullish if price action breaks out of sloping angular resistance and the retest confirmation holds. Normally, it's a bearish pattern when price action fails the horizontal support base.
Descending triangle patterns are bearish patterns that show a downside breakdown. Symmetrical triangles can be bullish or bearish patterns depending on the preceding trend.
A bearish breakdown comes after the price fails the base of the descending triangle. The price will often bounce and go back to the base of the triangle before the continuation downward happens.
When the bearish angular resistance is broken on a descending triangle, there is an 84% accuracy rate.
A descending triangle pattern indicates a bearish trend in a security due to the lower highs. The bulls aren't able to push the price up to create newer highs, and eventually, the bears push the price below support levels.
