Descending triangles are formed with two trendlines drawn on a security or index's price chart, one as a resistance line that follows a series of declining peaks and another that forms a steady horizontal support level underneath. The appearance of a descending triangle hints that demand for the security is waning and prices threaten to break out below support. The triangle becomes an increasingly bearish indicator as the gap between the preceding peaks and the support line narrows.

Some view descending triangles as a signal that traders are trying to bring the security higher but keep meeting resistance and are slowly losing faith in the asset. The descending triangle is a very bearish indicator.

Spotting Descending Triangle Patterns

Triangle patterns are popular for two reasons: they occur with relative frequency, and they are considered easy to identify. The price movements that precede a triangle are not very important; what matters is the consistency of the support and resistance levels that appear.

The peaks, or tops, of consecutive price rallies in the chart should consistently settle lower than the preceding peaks, creating a natural downward-sloping resistance. The support line should remain unbroken throughout a series of troughs, causing the pattern to narrow as it moves across the chart left to right.

Once the price eventually breaks through the support level, traders sell their positions, if they have not already done so, or enter into short positions. All of this activity can result in a significant drop, pushing the value of the security far lower than the prior support. As with most breakouts, the support level flips and becomes a resistance point for any subsequent rallies.

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

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  2. Where do traders place orders when they identify descending triangles?

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  3. Where do traders place orders when they identify ascending triangles?

    Identify the formation of an ascending triangle pattern to enter a trade to take advantage of a continued uptrend or a market ... Read Answer >>
  4. How effective is creating trade entries after spotting a Symmetrical Triangle pattern?

    Understand the symmetrical triangle pattern and the likely success of the most common breakout trading strategy implemented ... 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 important are descending tops for a trading strategy?

    Find out what it means when a security or indicator is showing a descending tops pattern on a price chart, and what it says ... Read Answer >>
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