Descending Triangles

Descending Triangles

descending

As we have discussed the symmetrical & ascending triangles in the previous chapters, lets now look into the descending triangles.

As the word suggests, the descending triangle is contrast to the ascending triangle. It is usually formed during a downtrend.

The bottom of the triangle is normally flat level of support with the upper side sloping downwards as the price makes lower highs. This pattern indicates “weakening support” and an approaching breakout to the downside. A possible “selling opportunity” is noted as the “lower highs “show us that the bears are gaining command.

There are two techniques we can use a descending triangle to trade.

Descending triangles structure:

descending

Practice session:

Exercise 1: Where is the descending triangle? Show exercise

Exercise 2: Where is the descending triangle? Show exercise

Technique 1

In order to trade this pattern: “Enter once the support level has been broken and the price starts to move to the downside.” Wait for a candle to close below the support level before looking to go short.

The “stop loss” is placed above the down sloping side of the triangle pattern. Measure the “profit target” by taking the height of the back of the descending triangle and extending that distance down from the breakout.

The chart reveals:

Orange – where to place the entry

Red – top loss

Green – take profit levels

descending

You can practice how to place the entry, stop loss and profit target, according to method 1 in the following exercise:

Exercise: Where would you place your entry, stop loss and profit target? Show exercise

Technique 2

“Wait for the price to break below the lower support line”, as in the first example and then look to place a sell order on the retest of the support level (broken support is now resistance).

The stop loss would go above the new resistance area and the profit target would be the same as in the previous illustration.

The chart below indicates: the entry, stop loss and take profit levels.

descending

ES1 once the price breaks through the support and comes back up to test the old support level as resistance, the entry is made. Although a little bit higher than the old support level., the price finds resistance and the price starts to move back down.

SL2 The stop loss in placed above the resistance level at which the price reversed.

TP3 The profit target goes the same distance away as the back of the triangle, down from the entry.

Practice session: Method 2

Exercise: Where would you place your entry, stop loss and profit target? Show exercise

Nut Shell

An overview of the lesson discussed so far:

Selling opportunity: The descending triangle pattern indicates a “weakening support level” and potential downwards move.

There are two techniques we can use a descending triangle to trade.

Technique 1: Enter as the price breaks below the support level. Place your stop loss above the slope of the triangle. Place your profit target the same distance away as the length of the back of the triangle, down from the entry.

Technique 2: Enter after the price has broken below support and has come up to test the old support as resistance. Place your stop loss above the resistance level. Place the profit target the same distance as the length as the back of the triangle, down from the entry.