Besides the ascending triangle, the descending triangle pattern is one of the well-known chart patterns among traders. How does it work?
In this review, you will become acquainted with this vital pattern, providing traders with a technical opportunity to make huge profits over a relatively short period.
Here’s a full review of the descending triangle and how it works, which is very important.
What is the descending triangle pattern?
In general, the definition of a descending triangle is a triangle pattern that shows a bearish chart. This pattern was born when price conditions were down (downtrend).
This pattern is commonly used in technical analysis, which is designed by drawing a trend line connecting the lower highs and a second horizontal trend line connecting the lows.
Also, traders often observe a move below the trend line’s lower support. When the price breaks below the lower support, the downward momentum will continue and become even stronger.
Once the breakdown occurs, the trader will go into a short position and aggressively help push the asset price even lower. The descending triangle is a chart pattern showing that demand for assets, derivatives, or commodities is weakening.
In this case, the descending triangle can form an uptrend reversal pattern but usually appears as a bearish continuation pattern.
Difference Between Descending and Ascending Triangle Patterns
So, what is the difference between the descending and ascending triangle patterns?
These two types of triangle patterns are continuation patterns. However, the descending triangle has a horizontal downward trend line and a descending upper trend line.
Meanwhile, the ascending triangle forms a horizontal trendline at the highs and an ascending trendline at the lows. In addition, an ascending triangle can also be included in a downtrend reversal, but this pattern is more commonly applied as a bullish continuation pattern.
On the other hand, the descending triangle can form an uptrend pattern but is more commonly applied as a bearish continuation pattern.
How to Read the Descending Triangle
How to read the descending triangle pattern?
As the name implies, it is descending means descending. Thus, this one triangle pattern will be formed when the price falls. In this pattern, it is known that the upper trend line is descending, while the lower trend line tends to be flat.
The development of the descending pattern also takes the same time as the ascending pattern, and volume, again, plays an essential role in the downside breakout.
Limitations of Using Descending Patterns in Trading
The limit to using the descending triangle pattern when trading is in the presence of potential damage that is not quite right.
There are also situations where trend lines need to be redrawn because price action breaks in the opposite direction—no chart pattern is perfect.
If the breakdown does not occur, the crypto could rebound to retest the upper trend line resistance before moving lower again to retest the lower trend line support level.
You need to know that the more often the price touches the support and resistance levels, the more reliable the chart pattern will be.
That was the discussion about the triangle pattern, starting from its meaning to the limits of using the declining pattern in trading. You can also read other collections of articles on INDODAX Academy.