Descending Triangle Complete Guide

What is Descending Triangle?

The Descending Triangle is a bearish continuation chart pattern that typically forms during an existing downtrend, signaling that the selling pressure is likely to persist. Visually, it is characterized by a relatively flat or horizontal lower support line, which represents a price level where buyers consistently step in, and a downward-sloping upper resistance line, indicating that sellers are becoming more aggressive and willing to sell at progressively lower prices. The pattern forms as price oscillates between these two converging lines, creating a triangular shape. Each subsequent rally fails to reach the previous high, while the lows repeatedly test the same support level. Volume characteristics are crucial for confirmation. Typically, trading volume tends to contract as the pattern develops, reflecting a period of indecision or consolidation. A significant surge in volume is expected when the price finally breaks below the horizontal support line, confirming the bearish continuation. According to Thomas Bulkowski's extensive research in 'Encyclopedia of Chart Patterns,' descending triangles are reliable continuation patterns. For patterns forming in a prior downtrend, the average decline after a breakdown is approximately 14%, with a failure rate (price not dropping at least 5%) of about 11%. Bulkowski also notes that throwbacks, where price retests the breakdown level, occur in about 64% of cases, and the pattern meets its price target approximately 67% of the time.

Identification Rules

1. A clear prior downtrend must precede the formation of the descending triangle.
2. The pattern must exhibit a relatively flat or horizontal lower support line, with at least two distinct lows touching or very near this level.
3. The pattern must have a downward-sloping upper resistance line, with at least two distinct highs touching or very near this declining trendline.
4. The formation of the pattern should span a minimum of 20 price bars to be considered valid.

References

• Thomas N. Bulkowski (2005). Encyclopedia of Chart Patterns.
• Steve Nison (2001). Japanese Candlestick Charting Techniques.

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