Descending Triangle is a common price pattern frequently observed in technical analysis.
In simple terms, the Descending Triangle is a shape of prices that appears during a downtrend and consists of a downward-sloping resistance line and a horizontal or slightly rising support line, implying a potential further decline in prices.
The characteristics of the Descending Triangle are as follows:
Downtrend: The Descending Triangle appears in a clear downtrend, indicating strong selling pressure.
Resistance Line: Above the Descending Triangle is a slanting downward resistance line that connects the descending high points of prices. This line represents selling pressure that prevents prices from rising.
Support Line: Below the Descending Triangle is a horizontal or slightly rising support line that connects the relatively flat or slightly rising low points of prices. This line represents buying support that resists price declines.
Trading Volume: In the Descending Triangle, trading volume usually decreases gradually, reflecting market participants' hesitation and watchfulness for further declines.
Breakout: The breakout of the Descending Triangle typically occurs when the price breaks through the support line. Once the price breaks the support line, more downward movement is likely, further confirming the downtrend.
The significance of the Descending Triangle lies in its indication of a potential further decline in prices. Investors can formulate trading strategies by observing the breakout point.
Generally, the breakthrough of the support line is considered a selling signal, while before the breakout, investors may choose to wait and adopt cautious trading strategies.
Let me give you an example to help you better understand the Descending Triangle:
NASDAQ Index (IXIC) - During the period from January 12, 2021, to February 20, 2021, a Descending Triangle pattern appeared. When the candlestick trend broke through the support line, the stock price experienced further declines.
Source：Tiger trade app
Therefore, when observing the Descending Triangle technical pattern, you should pay attention to the changes in the support line, resistance line, and trading volume, and consider the timing of entering or exiting after confirming the breakout.
Additionally, you need to integrate other technical indicators and trends for comprehensive analysis to enhance the accuracy of your trading decisions.
When observing the Descending Triangle technical pattern, you also need to pay attention to the following aspects:
Support Line: Observe the descending support line, which is a horizontal or slightly rising segment. If the price breaks through the support line, it may indicate further price declines.
Resistance Line: Observe the descending resistance line, which is a downward-sloping segment. Whenever the price rebounds near the resistance line, it usually encounters resistance and continues to decline.
Trading Volume: Pay attention to changes in trading volume. In the Descending Triangle, trading volume usually decreases gradually. However, when the price breaks the support line, a higher trading volume may suggest further price declines.
Target Price: You can use the Descending Triangle's height measurement method to predict the downside target price. The target price is usually derived by extending the height of the triangle downward from the breakout point.
Confirm Breakout: Consider trading only after confirming a clear breakout of the support line. Confirming the breakout can reduce the risk of false signals and wrong trades.
In conclusion, the Descending Triangle is a bearish pattern in technical analysis, but it is not 100% accurate, requiring us to combine other indicators for comprehensive analysis.