Online Trading Blog

Descending triangle formation is a bearish triangle chart formation which is just opposite to Ascending Triangle Formation. It is usually a trend continuation formation when formed in downtrend; but also can be a trend reversal formation when formed in an uptrend. Descending triangle can be easily identified and the pattern is recognized by plotting two trend lines, a lower flat trendline and an upper declining trendline.

In descending triangle formation, the lower horizontal trendline connects two or more lows for a period and is flat because prices repeatedly bounce back after touching a support level as bears are failing to break that level. The upper trendline connects two or more highs for a period and is declining because each high is lower than previous one as bears are tightening the grip. Trading volume usually declines with the pattern formation. At breakout price falls sharply and usually trading volume increases.

Descending triangle is considered more reliable when they are formed in a significant downtrend. Sell signals are generated once the price breakout the support level. For next price movements, this breakout point becomes the resistance level. Next price target is equal to the vertical triangle height (longest distance between high and low trend lines) lower to the breakout point. The duration of descending triangle formation can be from weeks to months. Traders are advised to use different indicators and tools to confirm trend breakout.

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