A descending triangle pattern indicates a bearish chart, and it is widely used for the purpose of technical analysis. This chart is characterised by a descending upper trendline and another flatter and horizontal trendline, which is lower than the first one.
Here, we will try to understand the basics of the descending triangle pattern.
Traders can use this pattern to determine whether the demand for an asset, derivative, or commodity is weakening. When the price breaks below the support level, it indicates that the downward momentum can continue. The descending triangle, often known as the falling triangle, has an inherent measuring technique that could be applied to the pattern to gauge likely take-profit targets.
Traders look for descending triangles since the pattern indicates a breakdown. When the price drops, buyers come in and push the price up even higher.
However, the descending triangle indicates a lack of buying pressure. Descending triangles are famous for offering traders the chance to make considerable profits over a short period of time.
Technical traders take a bearish position to trade the pattern. To profit from the descending triangle, traders have to identify clear breakdowns and avoid false indicators.
They need to consider that if there are no breakdowns, the prices will test the upper resistance before moving down once again.
The main features of this chart pattern are listed below:
Descending triangles have several notable characteristics that traders and investors can use to identify them. The features typically applied here are:
The market needs to be in an existing downtrend before the descending triangle patterns form.
The descending triangle forms when the market enters the consolidation phase. Building on the second point, a downward-sloping trend line could be drawn by linking the upper points and indicating that the sellers are pulling the prices down.
The lower horizontal trend line acts like a support, and the prices often approach the level until the breakout happens. The continuous downtrend takes place after the breakout below the lower trend line.
The table below lists out the advantages and disadvantages of the descending triangle:
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Merits |
Demerits |
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It is an easily identifiable pattern and forms a clear target level. |
There is always the potential for a false breakdown, which is where the downtrend reverses the pattern. |
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The descending triangle pattern is thought to be one of the most trustworthy and effective trading patterns, as post-pattern implications take place faster than other patterns. |
There are chances of the prices moving sideways or higher over lengthy time horizons, which acts contrary to the usual characteristics of the descending triangles. |
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Traders would consider opening a long or short position once the falling triangle pattern is verified based on the direction of the price movement. |
In some cases, the trend lines need to be redrawn as the prices can break out in a direction opposite to what was expected. |