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.

RELATED TERMS
  1. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily ...
  2. Triangle

    A technical analysis pattern created by drawing trendlines along ...
  3. Symmetrical Triangle

    A chart pattern used in technical analysis that is easily recognized ...
  4. Breakout Trader

    A type of trader who uses technical analysis to find potential ...
  5. Speed Resistance Lines

    A tool in technical analysis that is used for determining potential ...
  6. Descending Channel

    A descending channel or downtrend is the price action contained ...
Related Articles
  1. Trading

    Triangles: A Short Study In Continuation Patterns

    Learn how to read these formations of horizontal trading patterns.
  2. Trading

    Continuation Patterns: Introduction To Triangles

    The three types of triangle continuation patterns look different, yet provide similar information. Find out how.
  3. Investing

    The Utility Of Trendlines

    Trendlines give an investor a good idea of the direction an investment might move in. Discover how to make them work for your portfolio.
  4. Trading

    Continuation Patterns - Part 2

    Take a closer look at triangles, which appear in ascending, descending and symmetrical forms.
  5. Trading

    Continuation Patterns: In-Depth Look At Triangles

    We take a closer look at ascending and descending triangles to help traders predict the ultimate breakout direction.
  6. Investing

    Stocks with Breakout Potential (MDT, SLM)

    Stocks are moving within narrowing price bands and are poised for a breakout.
  7. Trading

    Watch for Short-term Trendline Breaks in These Stocks (MDLZ, VLO)

    When these short-term trendlines break, the recent rally in these stocks is likely over.
  8. Trading

    Stock Price Outlook for Alphabet (GOOGL)

    Google stock is in a very interesting location on the price chart. Here are scenarios for short-term and potentially longer-term trades.
RELATED FAQS
  1. What trading opportunities does a descending triangle offer?

    Learn about the trading opportunities that may be presented with a descending triangle chart pattern, including when traders ... Read Answer >>
  2. Where do traders place orders when they identify descending triangles?

    Learn how to identify descending triangles and how traders use recognition of that chart pattern to place trades before the ... Read Answer >>
  3. How do traders identify descending triangle patterns?

    Learn how to identify a descending triangle pattern on a security or index's price chart, and discover why traders consider ... Read Answer >>
  4. What is the breakout target price of an descending triangle?

    Find out more about the most common method traders use to place their target price following a breakout from a descending ... Read Answer >>
  5. What trading opportunities does an ascending triangle offer?

    Recognize and utilize an ascending triangle formation on a chart to determine trading opportunities that anticipate a market's ... Read Answer >>
  6. How are descending tops interpreted by traders and technical analysts?

    Find out how technical analysts and traders identify and interpret a descending tops pattern and why this pattern is viewed ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center