Descending Triangle: Bearish Continuation Pattern
1. Definition and Structure of the Pattern
Graphical Structure
The descending triangle consists of two trendlines: a horizontal support line connecting at least three local lows at the same level, and a descending resistance line drawn through lower highs with at least two touches and a third retest.
Movement Within the Triangle
The price moves within a narrowing range, reflecting a balance of forces. A true breakdown of support creates momentum, often equal to the height of the pattern at its widest part.
Variants of Shape
Sometimes, the triangle can be skewed, where the support line is slightly tilted downward or the resistance line is gently upward. Such variations require more careful analysis concerning the primary trend.
2. Conditions for Formation and Recognition
Preceding Trend
For a reliable signal, a pronounced descending trend must precede the formation of the triangle. In a sideways channel, the pattern often results in false breakouts.
Touches on the Lines
The support line should have at least three touches, while the resistance line should have two lower highs and a third retest. This ensures the statistical strength of the pattern and reduces the risk of false signals.
Volatility Compression
The range slowly constricts, demonstrating a slowdown in activity leading up to a key breakout. Phases of sharp micro-fluctuations within the triangle often foreshadow a false breakout.
Consolidation Volume
A decline in volume highlights the "endurance" of sellers until the breakout moment. If the volume does not decrease, it is likely that the formation occurs under flat conditions, rather than in trending conditions.
3. Market Psychology and Seller Dominance
Buyers vs. Sellers
Each new high being lower than the previous one indicates that buyers are losing control over the movement. Sellers, on the other hand, demonstrate confidence, persistently driving the price down to the support level.
Seller Strategy
Sellers use retests to flush out the last volume of buyers. After the breakout and subsequent return to the level, which now acts as resistance, bearish sentiments are confirmed by a sharp downward movement.
The Role of Stop Orders
Stop orders for buyers are often concentrated at the support level. Their activation upon a breakout intensifies the decline, creating an avalanche effect.
4. Breakout Signals and Entry Tactics
Daily Confirmation
For signal reliability, a daily candle must close below the support level. On lower timeframes, false breakouts tend to occur more frequently.
Volume Filter
A volume increase of 40-50% or more confirms a mass exit of sellers and the market's readiness for continued decline.
Entry Point
The optimal moment is the closing of a candle and a retest of the level. When entering directly, the stop-loss is placed above the resistance; if entering on a retest, it is set immediately after it.
Trade Management
After opening a position, part of the volume should be taken at half of the target, while the remainder is held until the full movement is executed.
5. Target Calculation and Risk Management
Target Projection
The vertical height of the triangle at its base is used to establish a potential target when projected downward from the breakout point.
Stop Loss + ATR
The stop loss is placed above the last retest, with the distance adjusted according to the ATR to account for the current level of volatility.
Risk/Reward Ratio
The recommended minimum ratio is 2:1, with the risk per trade being up to 2% of the deposit.
Money Management
Dividing the position and moving the stop-loss to breakeven after reaching 50% of the target allows for securing part of the profit and increasing psychological comfort.
6. Confirmation through Volume and Indicators
Volume
High volume confirms the authenticity of the breakout. Low volume during a breakout indicates delayed liquidity transfer and foreshadows a retest.
RSI
Divergence on the RSI before the breakout often signals the exhaustion of buying activity.
MACD
Crossing of MACD provides additional confirmation for entering a short position.
ATR
ATR is used for adaptive stop-loss calculation and minimizing being "shook out" by noise.
Fibonacci
Fibonacci retracement levels are applied to refine technical zones for entry, stop-loss, and take-profit.
7. Comparison with Other Patterns
| Pattern | Signal | Formation | Strength | Characteristics |
|---|---|---|---|---|
| Descending Triangle | Continuation | 4–6 weeks | High | Clear target, volume confirmation |
| Bearish Flag | Rapid Decline | 1–5 days | Medium | Short distance, quick entry |
| Triple Top | Continuation | 3–8 weeks | Medium | Long formation, filters noise |
| Head and Shoulders (Bottom) | Reversal | 6–12 weeks | High | Complex recognition |
| Sideways Market | Exit | 2–8 weeks | Low | No precise target |
8. Timeframes and Practical Cases
Optimal Timeframes
D1 is the gold standard for analysis and entry. H4 confirms signals on lower timeframes but requires strict volume filtering. W1 is used for long-term positions and strategies.
Cases
Stock X: The triangle formed over 5 weeks, with a breakout on +60% volume leading to a -15% decline over 3 weeks.
EUR/USD (H4): Triangle formed over 3 weeks, retest, profit of 120 pips with a stop of 30 pips.
BTC/USD (D1): One month of consolidation, MACD divergence, resulting in -18% over 2 weeks.
Brent (W1): Compression of 4 weeks, false breakouts, true breakout on +80% volume, and a -12% decline over a month.
S&P 500 (D1): Six-month triangle, breakout upwards with ETF SPY, leading to a +5% rise over a month.
9. Errors and Screening
Common Errors
- Early entry before candle confirmation.
- Ignoring the retest.
- Incorrect stop-loss placement.
- Neglecting money management.
Pre-Trading Screening
Utilize TradingView, Finviz, and MT5 to search for triangles, with filters for ATR and volume > median, while checking correlation with the S&P 500 for context confirmation.
10. Entry Strategy Checklist
- Identify a triangle on D1 (4–6 weeks).
- Verify touches on support and resistance lines.
- Assess volume and ATR.
- Wait for a candle to close below support.
- Confirm volume is ≥140%.
- Enter with risk ≤2% of deposit; stop = resistance + ATR×1.5.
- Target = triangle height projected downward.
- Move stop to breakeven after reaching 50% of the target.
- Close the second portion at full target.
11. Conclusion and Recommendations
- Draw lines clearly and adhere to the number of touches.
- Wait for confirmation through candle closure and volume.
- Use retests for more favorable entries.
- Measure the height of the triangle for targets.
- Adjust the stop-loss according to ATR.
- Maintain a profit/risk ratio ≥2:1; risk 1–2% of the deposit.
- Filter signals using RSI, MACD, and Fibonacci.
- Employ multi-timeframe analysis.
Adhering to these recommendations will help traders enhance the accuracy of short entries, optimize risk management, and consistently profit from bearish markets using the descending triangle.
