Descending Triangle

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Definition: Descending Triangle

Full Definition of Descending Triangle

Descending Triangle is a bearish chart pattern used in technical analysis. The pattern usually forms during a downtrend as a continuation pattern, or as a reversal pattern at the end of an uptrend.

The descending triangle is determined by drawing one descending trend line that connects a series of lower highs and a second horizontal trend line that represents a strong level of support.

The price should touch each trend line at least twice as distinct peaks or valleys. The price should “fill up” most of the available white space between the two trend lines.

Descending Triangle Application

Traders are on high alert for a pending breakdown.  Volume tends to dry up in anticipation of the potential breakdown.

The pattern is confirmed once the price closes below the support level.  Once the breakdown occurs, protective stops will be triggered causing an exaggeration of the price drop.

The price may recover back to the support level before initiating another decline in price. Traders often use this time to enter into short positions and then aggressively push the price of the stock lower.

In some cases, the horizontal support level acts as a base for a breakout to the upside. The pattern may then convert into a double bottom or triple bottom.

Traders should wait until the breakout is confirmed by a close price above the trend line.

In many cases, the breakout will temporarily retrace back to where the breakout occurred before continuing with the upward trend.

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Definition Sources

Definitions for Descending Triangle are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 23rd March, 2020 | 0 Views.