Descending Triangle

Definition:

A Descending Triangle is a bearish chart pattern that consists of two trendlines: 1) a horizontal trendline at a level of support defined with no fewer than two swing lows and 2) a downward slanting trendline connecting a series of lower swing or pivot highs.

Background:

The pattern starts to form when price action traces an orderly price rise from a swing low much like a pullback sell. The price then declines down to the prior swing low and stalls. A second rally occurs as underling support is decreased and the stock then forms a lower swing high. This occurs over and over again until a series of equal swing lows and lower swing highs are formed.

The power of a Descending Triangle can be greater after a powerful downside move due to the possible decrease of overhead resistance.

Practical Use:

Technical analysts realize that Descending Triangles can be stronger when the swing low that begins the pattern is also an all time low due to the possible lack of future underlying support. Traders typically work into short positions when the price of the asset breaks below the bottom support.