Descending Triangles Candlestick Pattern

Descending triangles, much like all triangles, are simply a sign of the markets tightening the range of motion that traders can go. In other words, the markets are struggling to make any real progress, which of course cannot go on forever. Because of this, there is a certain amount of inertia that builds up, much like a spring. Think of it this way: The markets are normally trying to decide what they think about the future direction of an asset. Eventually, one side wins, and the markets move in their direction. The resulting shape of the candles is a triangle.

The descending triangle is a bit different than a symmetrical one as it “leans” in a direction. The height of the triangle grow shorter and shorter over time, and the downtrend line on the upper boundary continues to constrict. However, on the bottom we have a steady amount of support, meaning that although there is a certain level the market cannot break below, every time the buyers get involved, they cannot continue to gain, and even do so less each rally. This should indicate that the sellers are slowly starting to take control.

Descending Triangle Formation

Descending Triangle Formation

As you can see by the formation above, there is a certain amount of stability in the lower part of the triangle shape, but the buyers are failing to reach the same highs each rally. Also, there is something else we should point out: The “height” of the triangle measures its potential target. What we mean is that if from the low to the highest point in the formation there is a 75 pip distance, when we finally break below the support – the markets should drop 75 pips. This is a phenomenon that you will see time and time again.

On the trade below, once we broke below the support, you can see that we reached the target with very little trouble. This is a classic descending triangle trade in action.

Descending Triangle in action.

Descending Triangle in action.

Leave a Reply