Connect with us

Forex Trading

Descending Triangle Pattern- 5 Simple Trading Strategies



how to trade descending triangle

The most common direction of the pattern is a continuation, but that doesn’t rule out the existence of reversal descending triangles. The target measurement in that case will be applied from the upper border’s breakout rate. Triangle patterns can be identified on a chart by drawing two trend lines through the peaks and troughs of the formation. If the trend lines start far apart but later converge, the pattern you see is indeed a triangle chart pattern. Also, there is always the possibility that prices move sideways or higher for lengthy periods of time, acting contrary to the usual features of descending triangles. In some situations, trend lines may need to be redrawn as the prices break out in the opposite direction than the one that was expected.

how to trade descending triangle

Traders use the descending triangle chart pattern to help capture shorting opportunities. Eventually, price action breaks out from the sloping trend line. Measure the distance from the horizontal support to the initial high and project this distance from the breakout level.

However, at some point during the trend, prices have consolidated, creating descending highs and a lower support trend line. Adding Fibonacci levels to the chart helps us confirm the breakout and find the correct levels for stop-loss and take-profit orders. For a Descending Triangle, X is defined as the distance between the highs and lows of the Descending Triangle chart pattern. This is great for the breakout trader because if the price breaks below Support, this cluster of stop orders would increase the selling pressure towards the downside. Because unlike most chart patterns which don’t make sense, the Descending Triangle has a logic to it. We can place entry orders above the slope of the lower highs and below the slope of the higher lows of the symmetrical triangle.

How to Trade a Descending Triangle

Unlike the strategy mentioned previously, in this set up, you can trade long positions. It is important to note that in this trading strategy we use the descending triangle pattern to anticipate potential breakouts. Along those lines, the moving average indicators serve the purpose of triggering the signal to initiate how to trade descending triangle a trade. When trading the descending triangle pattern, we’re always looking for the support breakout to give us a potential entry point. Unlike the textbook saying that teaches retail traders that a support or resistance level gets stronger if we have multiple retests; contrary to that the reverse is true.

Since no chart pattern is perfect and analysis is often subjective, using descending triangles has limitations. A false breakdown may occur, or trend lines may need to be redrawn if the price action breaks out in the opposite direction. If a breakdown doesn’t occur, the stock could rebound to re-test the upper trend line resistance before making another move lower to re-test lower trend line support levels. The more often that the price touches the support and resistance levels, the more reliable the chart pattern.

Descending Triangle Uptrend Pattern

If bulls are rejected at resistance, which is the former support, the price action drops lower and continues towards our take profit level. Once bears take over, the descending triangle takes place as the market consolidates. During consolidation, a downward-inclined trend line can be drawn to connect the lower highs. This trend line indicates that sellers are driving the price down, suggesting that bearish sentiment is gaining momentum. In some cases, a descending triangle appears as a reversal pattern at the end of an uptrend.

A symmetrical triangle is a common chart pattern that appears during an ongoing trend and indicates that the prices are consolidating before moving higher or lower. The pattern is characterized by two converging trendlines, creating a shape of a triangle. Here, in this article, we are going to explain everything you need to know about the symmetrical triangle chart pattern.

Descending, Ascending, and Symmetrical Triangles: The Differences

If you had placed another entry order below the slope of the higher lows, then you would cancel it as soon as the first order was hit. In this example, if we placed an entry order above the slope of the lower highs, we would’ve been taken along for a nice ride up. For example, three touches of the support line and two for the resistance line. Should seek the advice of a qualified securities professional before making any investment,and investigate and fully understand any and all risks before investing. This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealeror an investment adviser. StocksToTrade has 40+ built-in scans, and you can customize your own scans too.

  • Along those lines, the moving average indicators serve the purpose of triggering the signal to initiate a trade.
  • In a downtrend, price action finds the first resistance (1), which will be the horizontal resistance for the rest of the pattern formation.
  • This can be used as an initial signal to prepare for long positions in anticipation of a breakout.
  • Also, with a shallow pullback, it tells you the sellers are strongly in control and the next “wave” lower can be fast and furious.

Fortunately, regardless of the direction the formation implies, profitable trades can be produced using this charting technique. So, to make things simple, we will walk you through 5 easy steps for identifying the pattern. In the following example, we use a 60-minute stock chart for General Motors (GM). Traders can experiment with their own settings on the period of the moving average; this depends on the time period that you use. For example, for a daily chart time frame, you can use the 10, 20 or 20 and 50 period settings. Measure the distance from the first high to the first low and project the same from the anticipated breakout level.

How to trade a Symmetrical Triangle pattern?

Then you project the same from the breakout area which becomes your target price. In the next section of this article, we illustrate five descending triangle trading strategies that can be used. The descending triangle is one of three triangle patterns used in technical analysis.

What you can do in this case is to place entry orders just above the resistance line and below the support line. This way, you will automatically enter the trade without worrying about the direction in which the market moves next. Or alternatively, you can wait for the breakout to see where the price ends up moving and then go with the flow.

Ripple’s XRP Attracts Institutional Investors: Sees 127% Asset Growth – Nasdaq

Ripple’s XRP Attracts Institutional Investors: Sees 127% Asset Growth.

Posted: Tue, 15 Aug 2023 07:00:00 GMT [source]

Triangles reveal an opportunity to short and suggest a profit target, so both triangles are just different takes on a potential breakdown. Ascending triangles can also form at the reversal of a downtrend but are more commonly viewed as a bullish continuation pattern. Both the ascending and descending triangle are continuation patterns. The descending triangle has a horizontal lower trend line and a descending upper trend line. The ascending triangle has a horizontal trend line on the highs and a rising trend line on the lows.

As you can see in the chart below, the pattern is formed during a trend by two converging trend lines that form price consolidation and a ranging market. Like many other chart patterns, to effectively trade the symmetrical triangle pattern you’ll have to find the breakout level. Since the symmetrical triangle is a continuation chart pattern, you’ll be looking to enter a position in the direction of the previous trend. Ensure you get familiar with the descending triangle pattern before you commit any real money with this chart pattern. Don’t look for the perfect conditions rather learn how to trade like a pro. The descending triangle chart pattern is nice to have in your trading tool belt alongside other trading strategies.

  • Both triangles and wedges are typically long-term patterns that take shape on daily or weekly charts.
  • In the chart below, you can see how the “AB” line is equal to the “CD” line.
  • The idea is that sellers’ strength allows them to pull the price below the support level despite the short-term consolidation.

The price may bounce off one of the trend lines and reverse the trend altogether. As you see, this pattern looks very prim and proper, with both trend lines coming together at a similar slope. This pattern is often used as a common example of triangle patterns because it forms a very clear and recognizable shape. As such, many investors and traders know that being able to identify patterns and the psychology behind a particular pattern is crucial to taking advantage of the pattern. In this case, a trader waits for a re-test of the broken support before entering a sell trade.

At a minimum, two price lows and two price highs are required to produce the formation. If yes, then you will definitely find this article helpful as you begin to navigate the world of day trading breakouts. The chart below shows an example of the Microsoft (MSFT) daily stock chart. In the chart, you can see that the triangle pattern was formed after price action was trading sideways. After a brief consolidation, price falls lower before breaking out from the pattern. The basic premise of using this strategy is to look at volume once you’ve identified the pattern.

Continue Reading
Click to comment

You must be logged in to post a comment Login

Leave a Reply

Pilihan Editor