DECENDING TRIANGLE PATTERNWhat is a Descending Triangle?
A descending triangle is a bearish chart pattern used in technical analysis that is created by drawing one trend line that connects a series of lower highs and a second horizontal trend line that connects a series of lows. Oftentimes, traders watch for a move below the lower support trend line because it suggests that the downward momentum is building and a breakdown is imminent. Once the breakdown occurs, traders enter into short positions and aggressively help push the price of the asset even lower.
What Does a Descending Triangle Tell You?
Descending triangles are a very popular chart pattern among traders because it clearly shows that the demand for an asset, derivative or commodity is weakening. When the price breaks below the lower support, it is a clear indication that downside momentum is likely to continue or become even stronger. Descending triangles give technical traders the opportunity to make substantial profits over a brief period of time. Descending triangles can form as a reversal pattern to an uptrend, but they are generally seen as bearish continuation patterns.
How to Trade a Descending Triangle
Most traders look to initiate a short position following a high volume breakdown from lower trend line support in a descending triangle chart pattern. In general, the price target for the chart pattern is equal to the entry price minus the vertical height between the two trend lines at the time of the breakdown. The upper trend line resistance also serves as a stop-loss level for traders to limit their potential losses.
