Descending Triangle

DEFINITION of 'Descending Triangle'

A bearish chart pattern used in technical analysis that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support. Traders watch for a move below support, as it suggests that downward momentum is building. Once the breakdown occurs, traders enter into short positions and aggressively push the price of the asset lower. The chart below is an example of a descending triangle:

Descending Triangle

BREAKING DOWN 'Descending Triangle'

This is a very popular tool among traders because it clearly shows that the demand for an asset is weakening, and when the price breaks below the lower support, it is a clear indication that downside momentum is likely to continue or become stronger. Descending triangles give technical traders the opportunity to make substantial profits over a brief period of time. The most common price targets are generally set to equal the entry price minus the vertical height between the two trendlines.

A descending triangle is the bearish counterpart of an ascending triangle.

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RELATED FAQS
  1. What is the breakout target price of an descending triangle?

    Descending triangles are commonly occurring bearish continuation patterns. They are defined by a relatively stable support ... Read Full Answer >>
  2. What trading opportunities does a descending triangle offer?

    Descending triangles are placed on price charts by drawing a horizontal support trendline with a descending resistance trendline ... Read Full Answer >>
  3. How do traders identify descending triangle patterns?

    Descending triangles are formed with two trendlines drawn on a security or index's price chart, one as a resistance line ... Read Full Answer >>
  4. Where do traders place orders when they identify descending triangles?

    Descending triangles offer traders the opportunity to quickly see a significant profit once the market breaks out of the ... Read Full Answer >>
  5. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
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    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
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