The descending triangle is a bearish continuation pattern that signals potential breakdown opportunities. As the opposite of the ascending triangle, this pattern helps traders identify selling pressure building up before a potential price collapse. In this guide, we will cover everything you need to know about trading the descending triangle pattern.
What is a Descending Triangle?
A descending triangle is a bearish chart pattern that forms when price creates a horizontal support level while making lower highs. The pattern looks like a right triangle with a flat bottom and a descending upper trendline.
Pattern psychology: The descending triangle shows that sellers are becoming more aggressive over time. Each rally fails at progressively lower prices, indicating weakening demand. Eventually, the selling pressure becomes strong enough to break through the support level.
How to Identify a Descending Triangle
To properly identify a descending triangle, look for these key characteristics:
- Horizontal support: A clear level where price repeatedly bounces
- Descending resistance line: A trendline connecting at least two lower highs
- At least two touches: Both support and resistance should be tested multiple times
- Converging lines: The pattern should narrow as price approaches the apex
- Volume pattern: Volume typically decreases during pattern formation
Why Descending Triangles Are Bearish
The descending triangle is considered bearish for several reasons:
Supply and Demand Analysis
Each time price reaches support, buyers step in to defend that level. However, sellers are willing to sell at progressively lower prices, creating the descending resistance line. This shows that supply is increasing relative to demand.
Trapped Buyers
When the pattern eventually breaks below support, all the traders who bought at that level become trapped in losing positions. Their selling to cut losses adds fuel to the breakdown.
Statistical Edge
Historical studies show that descending triangles break to the downside approximately 64% of the time, giving traders a statistical edge when trading this pattern.
How to Trade the Descending Triangle
Entry Strategy 1: Breakdown Entry
The most common approach is to enter short when price breaks below the horizontal support with strong volume.
Breakdown Entry Example
- Support level: $40.00
- Entry: Short at $39.75 (after close below support)
- Confirmation: Volume spike on breakdown day
Entry Strategy 2: Retest Entry
After an initial breakdown, price often pulls back to test the broken support as new resistance. This provides a lower-risk entry.
Retest Entry Example
- Breakdown below $40.00
- Price drops to $38.00
- Pullback to $39.80 (new resistance)
- Entry: Short at $39.70 on rejection confirmation
Stop Loss Placement
Your stop loss should be placed above a level that would invalidate the pattern:
- Conservative: Above the descending trendline
- Moderate: Above the most recent lower high
- Aggressive: Just above the broken support
Price Target Calculation
The measured move technique projects a price target based on the pattern height:
- Measure the height of the triangle (from support to the highest point)
- Subtract this distance from the breakdown level
Target Calculation Example
- Support: $40.00
- Pattern high: $48.00
- Pattern height: $8.00
- Price target: $40.00 - $8.00 = $32.00
Complete Trading Example
Trading a Descending Triangle on Stock ABC
Stock ABC has been consolidating for four weeks. Here is the setup:
- Horizontal support: $25.00 (tested 3 times)
- Descending resistance: $30, $28, $27, $26 (lower highs)
- Pattern height: $5.00 ($30 - $25)
Trade execution:
- Entry: Short at $24.75 on breakdown with volume confirmation
- Stop loss: $26.50 (above recent lower high)
- Target: $20.00 (pattern height subtracted from breakdown)
Risk: $1.75 | Reward: $4.75 | R:R: 2.71:1
Volume Confirmation
Volume plays a crucial role in confirming descending triangle breakdowns:
- During formation: Volume should decrease as the pattern develops
- On breakdown: Volume should spike significantly above average
- After breakdown: Continued selling volume supports the move
A breakdown without volume confirmation is more likely to be a false move.
Common Mistakes to Avoid
- Anticipating the breakdown: Wait for confirmation before entering
- Ignoring volume: A low-volume breakdown often leads to a false move
- Fighting the trend: Do not try to go long in a descending triangle
- Setting targets too aggressively: Use the measured move technique
- Moving stops too quickly: Give the trade room to work
Failed Descending Triangles
Not all descending triangles break to the downside. When the pattern fails and breaks above the descending trendline, it can lead to a sharp rally as shorts cover. If you are already in a trade, your stop loss should limit your damage. A failed breakdown can offer a long opportunity.
Track Your Triangle Trades
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Summary
The descending triangle is a powerful bearish pattern that offers clear trading rules. Look for horizontal support with lower highs, enter on breakdown with volume confirmation, and use the measured move for your price target. With proper risk management and patience, this pattern can be a valuable addition to your trading toolkit.
Want to learn more triangle patterns? Check out our guides on ascending triangles and symmetrical triangles.