The Descending triangle is a trend continuation chart pattern which usually happens in bear markets while the sellers give pressure to the buyers for holding the orders in the market. Basically, the market rate tends to go up and it gets eventually confined by means of support level. When the rates are usually higher, then the descending patterns will be introduced and the market value will break in order to ensue with the downtrend. This formation is very similar to the Ascending Triangle but reverse.
A lot of investors that trade in the Forex market or other financial markets implement the descending triangle pattern in order to distinguish the sell signals. Those traders sell during the breakout time, but usually this type of manipulation is not recommended to everyone. Doing so will most commonly bring false signals that doesn’t help you to make profitable trading. Some traders will merely use this chart pattern to withhold the orders or to quit the market. For instance, while selling a currency pair, the trader will examine the descending pattern and hold the order concluding that the rate will breakout complementing the support level.
The Descending triangle follows a rally up within the resistance level, while the second decline complements the recent low abide by second rally. The major objective of descending triangle is to derive and evaluate the triangular vertical height by applying the length for measuring the breakout. This chart pattern sometimes occur during an uptrend and in these rare cases it is usually described as a continuation pattern. Never mind whether descending triangle is formed during the uptrend or downtrend, they are most usually used to indicate distribution.
When it comes to descending triangle chart pattern, the horizontal line indicates the demand which checks the security with the previous level occurred in the past. When a huge order is placed at this point, it might take a long time to execute. Price prevention helps in letting it down further. Even if the rate doesn’t go down, the highs will still persist to decline down.
How to trade with the descending triangle?
The confirmation of this chart pattern comes with the price breakout of the triangle formation to the downside. Also, the price must close below the horizontal line (support level). But in case the price breaks out to the upside, the descending triangle transform in a reversal chart pattern.
When the price breaks out of the descending triangle pattern to the downside the trader can open a short position if the price closes below the lower support trend line.