Continuation Technical Pattern - Descending Triangle

1. what is descending triangle?

The descending triangle forms exactly the opposite way of the ascending triangle. The coin price keeps falling and rebounding within a certain range. If we connect each point where the price rebounds, then we get a horizontal line.

However, the peak after each rebound is lower than the previous one, and by connecting each peak we can get a downward-sloping line. The trading volume shrinks as the two lines gradually meet:

2. How to identify a descending triangle

1. A descending triangle is mostly seen in a falling market, but there is also a small chance of seeing it in a bullish market.

1. The trough of the price wave is basically at the same height, while the peak after each bounce is lower than the previous one. So if we connect the troughs and peaks respectively, we can get a right-angled triangle sitting on a horizontal bottom line.

1. The trading volume gradually shrinks along the downward-sloping side of the triangle.

3. what does the descending triangle indicate?

The price will generally continue to fall after the descending triangle forms. So a descending triangle is regarded as a clue for a descending market, and that’s where the name of descending triangle comes from.

The fact that the price rises to a lower height at each bounce is itself a sign of descending. According to the Dow Theory of downward trends, the high is lower than the previous high, and the low is lower than the previous low, so we have reason to expect the downside trend will continue after the descending triangle appears.

4. Application

1. When the coin price breaks the bottom of the descending triangle and closes negatively, it indicates a downward market and suggests going long:

1. When the coin price breaks the top of the descending triangle and closes positively, it implies a bullish market and suggests going short :

5. Use in trading

The above picture depicts the daily chart of Gate.io contract BTC. From June 15, 2021, to July 21, 2021, BTC fell from a peak of $58,000 to around $30,000 and then moved up to around $41,000 where a converging descending triangle formed. After the upper line of the descending triangle crossed at around $32,500, the price continued to rise and started a second strong rise.

6. Summary

Triangles forms easily in candlesticks. Resonating with Dow’s Theory of trend changes, they are widely used to predict market trends. In addition to standard forms, the triangle can also show up in irregular patterns, so note to differentiate them in practice.

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Disclaimer

This article is for informational purposes only and does not constitute any investment advice, nor is Gate.io responsible for any of your investments. Content related to technical analysis, market judgment, trading skills, and traders’ sharing cannot be used on an investment basis. Investment may involve potential risks and face uncertainties. This article does not contain or imply any guarantee for returns on any type of investment.