What is the descending triangle pattern all about?

The descending triangle pattern in trading happens when there's a downward trendline alongside a horizontal support line. This formation often signals a bearish market trend. Breakouts from this pattern can either be upwards or downwards. However, in a bear market, a downward breakout can lead to significant profits.

During this pattern, prices tend to repeatedly drop to a similar level before bouncing back up, but each rebound is lower than the previous one. While volume isn't a crucial factor, it usually decreases as the pattern forms. However, it tends to surge when the breakout occurs.

Similar to ascending triangles, the breakout might happen before the convergence of the support and resistance lines. Within the pattern, there should be at least two minor lows touching the horizontal support line. These movements should be clear, and all touches during the consolidation phase should be accounted for.

How to spot a descending triangle?

To confirm a descending triangle pattern, there should be multiple minor high-low movements within the pattern. Without enough back-and-forth movements, the pattern isn't valid. Paying attention to upward breakouts is beneficial, especially in bull markets, as they can lead to significant gains.

Typically, the target for an upward breakout is reached later compared to a downward breakout.

Illustration of a descending triangle pattern

In the case of a descending triangle pattern, when the coin price breaches the neckline support, it creates significant selling pressure. For instance, in the Solana coin chart, the neckline support is set at $30. Traders commonly capitalize on the breakout of the triangle to profit from this pattern.

How to trade using a descending triangle?

Traders often initiate short positions following a substantial decrease in volume from the lower trend line support in a descending triangle pattern. They usually set the price target for the pattern based on the vertical distance between the two trend lines at the breakdown. Additionally, a stop-loss level is set to limit potential losses at the upper trend line resistance.

The key takeaway

The initial height of the triangle formation correlates with the minimum expected move after a breakout. Exiting a failed breakout immediately is crucial to minimize losses. Also, reversing the trade direction can lead to profitable opportunities.

By understanding triangle formations, traders gain a valuable tool for successful trading. Practice and experimentation in a demo account are essential before risking real money.