Descending Triangle

A Descending Triangle is considered bearish in most cases and is often a continuation pattern where the downtrend continues after the pattern is complete.

It can also be found in a reversal pattern when an uptrend reverses as well as a "shakeout" type of reversal pattern to get rid of weak hands..

Looking at the example Descending Triangle pattern below, you can notice a few characteristics that help to identify this pattern.

Descending Triangle Chart Pattern

First, when the bottom points are connected, they appear flat and form a horizontal line in the triangle. The top part of the triangle forms a downward sloping line when the high points are connected, hence the name "Descending Triangle".

As the price enters the bottom area of the pattern, selling is exhausted and buyers step in and start buying. This causes the rise in share price.

As the price reaches its high in the pattern, sellers take control and push the price lower once again, where selling is once again exhausted and buyers step in. Each time buyers step in, they do so with less conviction forming lower highs in the pattern where sellers take control and push the price lower again.

Finally, at the end of the pattern, buyers give up and are overwhelmed by sellers and a break of the pattern allows for the continuation of the downtrend lower.

Typically, volume will decrease as the Descending Triangle pattern is progressing and once the pattern is broken at the end, volume begins to increase.

Remember that prices do not have to reverse at exact levels to satisfy the pattern requirements. Prices often vary and you should be prepared for fluctuations in the patterns. Below is an example of a Descending Triangle Continuation Chart Pattern:

Descending Triangle Pattern

Notice that once the pattern ended and the downtrend continued, the price began to rise and re-tested the previous support level of the pattern as noted by the red arrow on the above chart.

This happens often with many types of chart patterns and makes traders think the pattern has not ended. When setting a stop loss, you may want to consider using one far enough past this previous support level of the pattern so you don't get faked out, and if indeed the pattern has not ended yet and the price moves against you, you will have some sort of protection.

I added two different green dotted lines on the chart as example stop losses for traders entering short positions at the break below the pattern end near $35.00 in this example.

Here are more pages to help with various chart patterns:

Return From "Descending Triangle" To "Stock Chart Patterns"

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