The descending triangle pattern is a popular bearish continuation pattern that is created by drawing a horizontal line that connects low points and a trend line that connects lower highs. Sometimes the pattern occurs in a reversal during an upward trend as well.
Traders look for descending triangles because the pattern indicates the coming of a breakdown. A breakdown usually occurs when the volume is high, and the move following it is fast and severe. Descending triangles are popular because they provide traders with the chance to make considerable profits in a short duration.
To trade the pattern, technical traders go short after a high volume break. The price target is usually equal to the entry point minus the vertical distance between drawn lines when the breakdown takes place. The stop loss position is taken at the upper trendline. To gain from trading with descending triangles, traders have to identify clear breakdowns and avoid false one. They also have to consider that in case of no breakdowns, the price may test the upper resistance before moving down again to the support.
Descending triangles are the opposite of ascending triangles as they have a horizontal upper trendline and a rising lower one. Reversals can happen with descending triangles as well, but they are usually considered bullish in nature. All triangle patterns provide traders the opportunity to short and set a profit target. To learn more about the descending triangle pattern click here.