The descending triangle
A horizontal floor with ever lower highs above it. Many expect a downside break. The direction is only certain afterwards.
The descending triangle is the mirror image of the ascending one. The price keeps bouncing off the same floor but recovers less each time.
What it's about
At the bottom there's support where buyers are waiting. Above, the highs are falling. Sellers give way earlier and the range narrows.
How to recognise it
- At least two lows at the same level.
- At least two falling highs.
- The swings get smaller.
- A close below the support counts as a break.
How the price target is estimated
The triangle height at its widest point is subtracted from the break point. Support at €30, first recovery high at €34: the target is around €26.
Where it misleads you
Descending triangles sometimes break upwards too. Then everyone betting on falling prices exits at once and the price rises fast. False breaks just below the support are common.
An example trade with made up numbers
Kurt holds 80 shares bought at €25. The stock has held at €30 for weeks, and the recoveries are getting weaker. Many people don't use a falling pattern for short selling but as a reason to sell or protect an existing position. So does Kurt.
The decision: Kurt sells when the stock closes below €30, at €29.60. After a €1 fee and a little spread, Kurt locks in about €365 in profit.
If the pattern holds: The stock falls to €26. Kurt avoided a €288 drop in value.
If it was a false breakout: The stock then rises to €33. Kurt misses out on €272.
Kurt drew a clear line and stuck to it. Which case would happen, he couldn't know beforehand.
In classic chart analysis the descending triangle counts as a continuation pattern in a downtrend. It also appears at the end of rises, though. The horizontal support is often easier to see than the falling line.
Summary
- In a descending triangle the floor is flat and the highs fall.
- The target is the triangle height subtracted from the break.
- Upside breakouts are possible and often fast.
Did you get it?
Support at €30, first high at €34. Where is the target?
Around €26.
How do you recognise a descending triangle?
Flat floor, falling highs.
What can an investor with an existing position do?
Decide in advance at what price to sell if the support breaks.
Sources and further reading
- StockCharts ChartSchool, Descending Triangle. View source ↗
- Thomas N. Bulkowski: Encyclopedia of Chart Patterns, 3rd edition 2021.
Related
- Ascending triangleChart pattern
- Symmetrical triangleChart pattern
- What chart patterns can doLesson