A descending triangle is a popular technical analysis chart pattern that traders often watch for as a potential signal of bearish continuation. It typically forms in a downtrend and is characterized by a series of lower highs converging toward a horizontal support level. This pattern reflects a market where sellers are gradually gaining strength, pushing prices lower at each rally attempt, while buyers manage to hold a consistent support level—at least temporarily.

Visually, a descending triangle appears as a triangle slanting downward on the top side and flat along the bottom. The descending trendline connects the lower highs, indicating increasing selling pressure, while the horizontal line marks a support level where demand repeatedly steps in. The pattern is considered complete when the price breaks decisively below the horizontal support, often signaling that the prevailing downtrend will continue.

The significance of the descending triangle lies in its predictive power. When the price breaks below the support level, it often triggers a surge in selling activity, leading to a strong downward move. Traders commonly use this breakout as an entry point for short positions or as a signal to exit long positions.

Formulaically, the target price after a descending triangle breakout can be estimated by measuring the height of the triangle at its widest point and subtracting that from the breakout level:

Target Price = Support Level – (Height of Triangle)

Here, the height of the triangle is calculated as the difference between the first high in the pattern and the support level. This provides a rough estimate of the potential downside move following the breakout.

A practical example comes from the foreign exchange market. Consider the EUR/USD currency pair in mid-2023, where the price formed a descending triangle over several weeks. The pair consistently failed to surpass lower highs around 1.1000 while finding support near 1.0850. Eventually, the price broke below 1.0850 with increased volume, leading to a sharp decline toward the next support zone around 1.0700. Traders who recognized the descending triangle and acted on the breakout were able to capitalize on the subsequent downtrend.

Despite its usefulness, there are common misconceptions and mistakes associated with descending triangles. One frequent error is assuming the pattern always results in a bearish breakout. While descending triangles are generally bearish continuation patterns, they can sometimes fail, leading to a breakout above the descending trendline instead. This false breakout can trap traders if they enter short positions prematurely without confirmation.

Another pitfall is neglecting volume analysis. Ideally, volume should decrease during the formation of the triangle and then spike during the breakout, confirming the move. Ignoring this can lead to false signals. Additionally, traders sometimes misidentify the horizontal support level, which should be a well-tested price area rather than a single low point.

People often search for related queries like “descending triangle breakout strategy,” “how to trade descending triangles,” or “descending triangle vs symmetrical triangle.” Understanding the difference is crucial: while descending triangles have a flat support line and downward-slanting resistance, symmetrical triangles have converging trendlines on both sides, often indicating indecision rather than a clear bearish or bullish bias.

In summary, the descending triangle is a valuable pattern for traders looking to identify potential bearish continuation setups. By carefully confirming the pattern with volume and breakout confirmation, and setting price targets using the height of the triangle, traders can improve their chances of successful trades. However, it is important to remain cautious of false breakouts and to use other technical tools and risk management strategies alongside pattern analysis.