A descending triangle is a simple chart pattern used in technical analysis. The descending triangle is formed from two trendlines, one for high prices and one for lows. The upper trendline of the triangle is a descending trendline, while the lower trendline is a horizontal trendline. The resulting shape is a right triangle whose hypotenuse moves downward over time.
In order to confirm a descending triangle on an asset’s chart, traders must note two reaction lows of similar magnitude and two reaction highs, each declining in price over time. There should be a reasonable amount of distance between each low or high. Descending triangles usually form and develop over a one to three month period.
The descending triangle is always a bearish pattern, indicating a strong sell signal. Prices on the upper trendline continue to decline, narrowing the triangle formation, until the level of support represented by the lower trendline is broken. When a level of support is broken, it becomes a level of resistance, confirming the overall downward trend of the asset’s price over time.