Chart patterns are essential in technical analysis. Technical analysis studies the past performance to predict the future performance. Chart patterns fall into two categories: ones that reverse a trend and those that continue the trend. Descending Triangle is a bearish continuation pattern.
Descending Triangle definition
Descending Triangle chart pattern develops in a downtrend. The bear market is followed by consolidation where the consolidation takes a triangular shape. The pattern is considered complete and ready to be entered short after the price breaks out from the lower trendline.
Why is understanding the Descending Triangle important for traders?
- The chart pattern helps traders join a downtrend.
- The pattern is easy to understand and notice on the charts.
- Learning about the pattern can help you manage your old trading positions. For instance when you are in a short position and see a Descending Triangle forming, you might want to stay in the position longer as the pattern is a continuation type.
Thorough Descending Triangle Explanation
The pattern consists of three phases: downtrend, consolidation and breakout. The pattern is considered to be ready to be entered once the lower trendline is broken. Many professional traders wait for the confirmation candle to close below the trendline. The confirmation candle helps traders avoid trading false breakouts.
The potential Take Profit target can be as high as the distance between the furthest consolidation points. Stop Loss can be placed above the lower trendline.
As with most other chart patterns, the Descending Triangle works better in higher time frames. In addition, highly volatile and choppy market conditions can produce a lot of false trading signals. It’s best to test and backtest trading strategies before trading live as different markets move differently.
Example of Descending Triangle in Forex
It’s difficult to say how accurate the pattern is for trading Forex pairs. Criticism usually comes from fundamental traders that do not believe in technical analysis. The pattern is purely technical and it’s best to keep an eye on the market news to avoid unexpected volatility. The pattern offers a good risk and reward ratio and possibility to join a downtrend.
FAQs on Descending Triangle in Trading
Is the Descending Triangle bullish?
Descending Triangle is a continuation chart pattern that appears in a bear market and helps the trend continue. The pattern is a bearish one.
Is the Descending Triangle bearish?
Yes. As the name suggests, the pattern is formed in a bear trend and moves the price further downwards. Keep in mind that the pattern is only ready to be entered when the breakout point is reached.
Why do chart patterns work better in larger time frames?
Larger time frames offer reduced noise. Mostly position and swing traders are using chart patterns on higher time frames, levels and fundamental analysis. Generally traders trade in the pattern direction or avoid placing orders against them. Which makes patterns self-fulfilling prophecies. Moreover, patterns graphically show the historic bull and bear fights and give traders favorable probabilities.