Description:
The descending triangle pattern is a bearish continuation formation observed within a downtrend, indicating a potential resumption of downward momentum following a period of consolidation. This pattern is characterized by a series of lower highs forming a descending trendline and relatively equal lows forming a horizontal support line, creating a triangular shape. As the price approaches the apex of the triangle, volume often declines, reflecting reduced trading activity. The pattern is confirmed upon a breakout below the horizontal support line, typically accompanied by increased volume, validating the bearish bias. Traders may utilize this pattern to identify entry points for short positions, with stop loss orders typically placed above the descending trendline or recent swing high to manage risk.
Input Parameters:
- Time Span: Defines the lookback period.
- Bands: Select from different band types such as ATR, St.Dev, Constant, or Percentage bands.
Use Cases
- Trade Entry: Traders can utilize the descending triangle pattern to identify opportune moments to enter short positions within an existing downtrend. Upon observing the formation of the pattern, traders anticipate a breakdown below the horizontal support line as a signal to initiate short positions, anticipating the continuation of the downward trend.
- Stop Loss Placement: The descending triangle pattern aids traders in determining appropriate stop loss levels to manage risk effectively. Given the bearish bias of the pattern, traders may place their stop loss orders above the descending trendline or the recent swing high.
- Price Target Projection: Following confirmation of the breakout, traders often project a price target based on the height of the triangle. By measuring the vertical distance between the horizontal support line and the descending trendline at the widest point of the pattern, traders can extrapolate this distance downwards from the breakout point to estimate a potential target price.
This feature can be used in:
- Market Scanner
- Smart Checklist
Do you want to learn more? Check out our Learning Center Article.