The descending triangle is a bearish continuation pattern. This pattern forms two converging lines. The initial is a downward slant which resistance and the other is a horizontal support. To validate the descending triangle, there must be oscillation between the two lines. The lines must be touched at least twice for validation.
A graphic representation of an descending triangle follows:
The price of this pattern is decided by its height from the base of the triangle that is carried over the break point. A technique used is to draw a parallel to the support line of the descending triangle from the first contact point with the support
This pattern is difficult to classify. Indeed, the exit is bearish just over half the time. So this is a continuation pattern but may also be a reversal pattern symbolizing a buying accumulation zone. Bullish movements are also more important than downward movements.
Look at these statistics about the descending triangle:
– In 54% of cases, there is a bearish breakout.
– In 54% of cases, the target price can be reached when the support is broken. But when the bearish slant is broken, the percentage goes up to 84%.
– In 64% of cases, a pullback occurs on the support.
Over half the time, when a breakout does occur from the bottom, the exit will be made by the top. However, false breakouts by the top are rare with only 6%.
The exit often occurs at the 2/3 portion of the pattern. This is the output level that offers the best performance.
The target price of the pattern is often reached before the end of the triangle.
False breaks will give no indication on the true side of the exit.
Try to avoid taking a position if the breakout occurs before the 2/3 of the pattern.
Pullbacks can be harmful for the performance of the pattern.