Descending triangle pattern

A descending triangle is a chart pattern with two boundaries: a horizontal support that price tests several times, and a falling trend line that connects lower highs. The range between them narrows until price leaves the triangle.

It most often appears as a continuation pattern inside a downtrend – a pause before the next leg down. It also forms after an advance, where a break of the flat support is read as a top.

Draw the support and the falling highs first. On Charts the trend line tool does both. What to check:

• Flat support – at least two lows at about the same level.
• Falling highs – at least two highs, each lower than the one before, connected by a falling trend line.
• Price fills the triangle – several swings between the two lines, with bounces that get smaller.
• Volume – usually declines as the range narrows and rises on the break.
• Breakout – a candle close below the support. A wick under the level that closes back inside does not count.

A descending triangle is usually read as bearish. Every bounce from the support is weaker than the one before. Traders reason that each test uses up part of the buying interest at the level.

It is not a one-way pattern. A close above the falling trend line means sellers have lost control of the highs, and the triangle is then traded as an upside breakout.

The standard trade is a short after the support breaks.

• Entry – on the candle close below the support, or on a retest of the broken support from below.
• Stop – above the last lower high inside the triangle. A stop just above the broken support is tighter, but a deeper retest takes it out more often.
• Target – the height of the triangle at its widest part, subtracted from the support level.
• Example – support at 100, first lower high at 120. The triangle is 20 points tall, so the target is 100 – 20 = 80.
• The target is an estimate. The nearest support below is a common place to take part of the profit.

Both patterns have falling highs. In a descending triangle the lows hold one horizontal level. In a falling wedge the lows fall too, more slowly than the highs, and the pattern is read as bullish.

Check the lower line. Flat means a triangle and a watch for a break down. Sloping down means a wedge and a watch for a break up.

• Descending triangle – flat support, falling highs, usually bearish.
• Ascending triangle – flat resistance, rising lows, usually bullish. It is the mirror image.
• Symmetrical triangle – falling highs and rising lows. Neither side is flat, and the direction is taken from the breakout.

• Shorting before the break – a support that has held several times can hold again and send price back to the falling trend line.
• Trading a wick – a spike below the support that closes back above it is often a liquidity sweep, not a breakout.
• Selling far below the support – after a large breakout candle the stop above the last lower high is too far away for the size of the target.
• Assuming the direction – a close above the falling trend line is a valid break in the other direction.
• Measuring the height at the tip – the target uses the widest part of the triangle, at its left side.