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Descending Triangle Pattern Overview, Features, How To Identify

You can later reverse the same distance, starting from the breakout point and ending at the probable take-profit level. A descending triangle pattern often takes weeks to produce, even on an hourly time scale. Traders should follow the stock over a medium-term timeframe on an hourly or daily chart and be ready to enter at any time to maximize possible profits. Watch for periods of contraction with smaller trading ranges, signaling a potential descending triangle breakout. Set a trailing stop loss order along the 15 simple moving average.

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In this context, the price action may indicate a shift from bullish to bearish sentiment, particularly if the breakout occurs with increased volume, confirming the reversal. Longs think the price action will move higher after each bounce off support. And because of the stock’s downward trend, shorts think longs are losing momentum.

What is the accuracy rate of Descending Triangle Pattern?

• In case the price action returns within the triangle, the pattern is invalidated, and the stop loss is triggered.
• Another risk is that the price action can simply trade in a choppy manner, i.e. sideways with no clear breakout point.
• Traders commonly use this pattern to identify entry points for short positions.
• With each test of support, shorts think that support will finally break.
• This often happens when traders are unaware of the proper analytical tool to use.
• As the stock trends downward, price action will hit a level where it can’t break below any further below.

False breakouts can occur, so traders should first verify that the instrument is currently in a downtrend. They can also try to validate the signals by using indicators such as momentum indicators. Demand and supply is the basic concept on which the stock market tends to work. To identify the price action, demand and supply zones indicator the buying or selling pressure in the security. Once price action touches that bottom level at least two times or more, it signals a support area. Now you can place a flat horizontal trendline along that bottom level.

Yes, though rare, a bullish breakout descending triangle stock can occur, especially if the market sentiment shifts or volume favors buyers. A breakout without volume can be a false signal, meaning the price might snap back above the support line and trap you in a losing trade. The smoother price action from Heikin-Ashi charts helps you avoid getting tricked by short-term price fluctuations, allowing you to focus on the bigger trend. Because this pattern forms during a consolidation phase, Heikin-Ashi charts allow you to see the weakening momentum in the up-moves more clearly.

• The key is staying patient for the validated breakout, and then quickly capitalizing on the potential new trend.
• Traders using this approach simply have to wait for the falling triangle pattern to appear.
• This downward-sloping trendline indicates that sellers are slowly pulling the stock price down – offering further support for a bearish trading bias.
• This stock formed a descending triangle pattern during its downtrend which led to further selling and continuation of the downtrend.
• Descending triangles are famous for offering traders the chance to make considerable profits over a short period of time.

Gold PRICE Today Gold Spot Price Chart Live Price of Gold per Ounce

The red descending trend line shows lower highs while the horizontal green line shows support through the triangle. In a bearish market, the descending triangle will show a bearish potential that is equal or near-equal to the size of the triangle. This action is the primary reason why most traders use the descending triangle to open short positions after the price has broken downward. The price may return to test the top or a support/resistance level before continuing in the direction of the breakout. When the price breaks below the support line (usually somewhere between halfway and three-quatre length of the pattern), it is an indication to buy. In the chart of Bank Nifty taken from TradingView,  the pattern of Descending Triangle is clearly visible.

The descending triangle, on the contrary, shows when there isn’t much buying pressure. Here, sellers start selling for even less, indicating a string of lower highs. A breakdown generally appears when the volume is high and the move that follows is fast. Descending triangles are easy to spot and provide excellent risk-reward opportunities.

In some cases, the trend lines need to be redrawn as the prices can break out in a direction opposite to what was expected. They need to consider that if there are no breakdowns, the prices will test the upper resistance before moving down once again. This written/visual material is comprised of personal opinions and ideas and may not reflect those of the Company. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. Our platform may not offer all the products or services mentioned.

In addition, StocksToTrade accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, should it be construed as advice designed to meet the investment needs of any particular investor. Here’s a big downside of the descending triangle … Shorts could get caught in a short squeeze if there’s a reversal.