The descending triangle is a bearish chart pattern that signals sellers are gaining control. With its flat support level and declining resistance, this pattern shows that sellers are pushing prices lower while buyers defend a single level. When that support finally breaks, the result is typically a sharp decline.
What is a Descending Triangle?
A descending triangle forms when price consolidates between a horizontal support line and a downward-sloping resistance line. Each time price rallies, sellers step in at lower levels. Meanwhile, buyers defend the same support level. This pattern typically resolves with a downward breakdown.
Pattern Characteristics
- Flat Support: Multiple touches of the same horizontal support level, typically 2-4 times.
- Declining Resistance: Lower highs forming a descending trendline.
- Converging Lines: The pattern narrows as price approaches the apex.
- Decreasing Volume: Volume typically contracts during pattern formation.
- Breakdown Direction: Statistically breaks downward about 70% of the time.
Why It Works: The descending triangle shows that sellers are aggressively distributing shares at lower and lower prices, while buyers are concentrated at one level. When that buying pressure is overwhelmed, the breakdown can be severe.
Identifying the Pattern
A valid descending triangle requires specific criteria.
Validation Requirements
- At Least Two Lows: Price must test the support level at least twice.
- At Least Two Lower Highs: The resistance line needs at least two touches at successively lower levels.
- Duration: Pattern typically forms over 3 weeks to 3 months on daily charts.
- Volume Profile: Volume should generally decrease as the pattern develops.
Descending Triangle Example
META stock finds support at $280 three times over eight weeks. Each rally peaks at lower levels: $320, $310, $300. Volume contracts during the pattern. Then META breaks below $280 on heavy volume, confirming the descending triangle breakdown.
Trading the Descending Triangle
This pattern offers clear shorting opportunities with defined risk.
Entry Strategies
- Breakdown Entry: Short when price closes below the support line with strong volume. The most common approach.
- Anticipation Entry: Short near the declining resistance line, anticipating the breakdown. Better risk-reward but higher failure rate.
- Retest Entry: Wait for the breakdown, then short if price rallies back to test the former support as resistance.
Volume Confirmation
Volume patterns are important for confirming descending triangle breakdowns.
- During Pattern: Volume should decrease, showing indecision.
- On Breakdown: Volume should spike significantly, confirming seller commitment.
- After Breakdown: Continued selling pressure confirms the move is real.
Note: Unlike bullish breakouts, bearish breakdowns do not always require high volume. Fear can drive prices lower even on moderate volume.
Price Target Calculation
The measured move target is based on the height of the triangle at its widest point.
Target Calculation
- Support level: $280
- First resistance high: $320
- Pattern height: $320 - $280 = $40
- Price target: $280 - $40 = $240
Stop Loss Placement
- Above the Pattern: Place stop above the most recent lower high. Conservative approach.
- Above the Breakdown Point: Tighter stop just above support after breakdown.
- Above the Resistance Line: A break above the declining resistance invalidates the pattern.
Pattern Context
The descending triangle can appear in different market contexts.
In a Downtrend (Continuation)
When a descending triangle forms during an established downtrend, it typically acts as a continuation pattern. The breakdown resumes the prior trend direction. These are the most reliable bearish setups.
After an Uptrend (Reversal)
Descending triangles can form at market tops, signaling a potential reversal. When this occurs after a significant rally, it can mark major turning points.
Failed Breakdowns
About 30% of descending triangles break upward instead of down. If price breaks above the declining resistance line, it can lead to sharp rallies as trapped shorts cover their positions.
Using for Long Positions
Even if you do not short stocks, descending triangles provide valuable information.
Applications for Long-Only Traders
- Exit Signal: A descending triangle in a stock you own suggests exiting before the breakdown.
- Avoid New Longs: Do not buy stocks forming descending triangles until they resolve.
- Failed Breakdown Entry: If the pattern breaks upward instead, it can be a powerful long signal.
- Put Buying: Options traders can buy puts to profit from the expected decline.
Common Mistakes
Avoid these errors when trading descending triangles.
- Forcing the Pattern: Not every consolidation is a descending triangle. The resistance line must clearly slope downward.
- Shorting Too Early: Wait for the breakdown confirmation. Support levels can hold longer than expected.
- Trading Near the Apex: Breakdowns near the apex are less reliable and have smaller targets.
- Ignoring Market Context: Descending triangles are more reliable in bear markets than bull markets.
- Poor Position Sizing: Short positions carry unlimited risk. Size appropriately.
Timeframe Considerations
Descending triangles can form on various timeframes.
- Weekly Charts: Most significant, can signal major trend reversals or continuation. Large targets.
- Daily Charts: The standard timeframe for swing traders. Clear patterns, reasonable holding periods.
- Hourly Charts: Good for active traders, but more noise and false signals.
- Lower Timeframes: Less reliable. Use with additional confirmation.
Multiple Support Tests
Sometimes price tests support many times before breaking down.
What Multiple Tests Mean
- 3+ Tests: Shows strong support, but also shows persistent selling pressure.
- Building Pressure: Each test weakens support. Eventually, buyers are exhausted.
- Stronger Breakdowns: Patterns with more tests often have more powerful breakdowns when they finally occur.
Combining with Indicators
Increase your probability of success with additional technical tools.
Useful Confirmations
- RSI: RSI below 50 and declining supports the bearish thesis.
- Moving Averages: Price below the 50-day and 200-day moving averages confirms the bearish trend.
- MACD: A bearish MACD crossover during the pattern adds confidence.
- On-Balance Volume: Declining OBV shows distribution.
Confirmation Example
A descending triangle forms while RSI is below 50, price is under the 200-day MA, and OBV is declining. This confluence of bearish signals greatly increases the probability of a successful breakdown.
Analyze Your Trading Patterns
Pro Trader Dashboard helps you track which chart patterns produce your best results. See your descending triangle trade performance and refine your approach.
Summary
The descending triangle is a reliable bearish pattern characterized by flat support and declining resistance. Look for patterns with clear structure, decreasing volume during formation, and strong volume on breakdown. Calculate targets using the pattern height and place stops above the recent lower high. Remember that about 70% break downward, but always be prepared for failed patterns. Whether you short stocks, trade options, or simply want to avoid losses in your long positions, understanding descending triangles is essential.
Related patterns: Ascending Triangle Pattern and Symmetrical Triangle Pattern.