in the previous article The author has mentioned ascending triangle patternHow can shapes and patterns indicate a change or continuation of a trend? In this article, the author discusses another type of triangle price pattern: down triangle And what are the indications for the asset price? Check out the full discussion below.
What is the descending triangle pattern?
True to its name, down triangle It is an asset price action pattern that forms a downward sloping triangle. In this pattern, the resistance line becomes the declining portion of the triangle. while the support line becomes a flat part.
This indicates that the asset’s highest price point continues to decline. While the lowest price point (support) remains relatively unchanged. this means sell stronger buying forcethus pushing the price down, although it failed several times. At its peak, the price movement broke through the support and continued to decline.
like triangle upThe price movement of an asset must bounce up and down several times before it is called a descending triangle. in the same way The distance between the lower end of the resistance line that creates this pattern is the maximum or multiplied by the distance from the end of the line to the crest. (Virtual meeting angle between resistance and support)
What does the descending triangle mean?
down triangle is one of bearish price pattern or price patterns that indicate a downtrend So if this pattern is in the middle of a downtrend It is likely that the downtrend in the price will continue (😊).
This pattern can also appear when the price trend increases (uptrend). If you find it in the midst of an increasing price trend, then buying force (Bulls) started to lose with sell So sooner or later the rising price trend will end and the price trend will enter. Discharge period (decrease).
descending triangle example
In the picture above, it appears that after a while of decreasing The asset price then rises to point A and then falls and rises again but only below A point. This happened several times before finally breaking through the support and the asset price continues to decline.
How to trade with descending triangles
As this price action indicator shows that the asset price is trending down. The most suitable trading strategy to use is short sale (sold empty)Short selling is a high-risk trading transaction typically performed by experienced traders.
in this transaction Traders borrow assets from brokerage firms to sell them to the market. The advantage of traders, known as short sellers, is that if the asset’s price actually goes down after they sell and before the due date for the asset return. As a result, traders are able to return the borrowed assets to the broker at a lower price than they should be.
with the occurrence Descending pattern triangle on chart short seller Entry point can be opened when price breaks through support. To take profit, short seller can open exit position when the distance between breakout entry point and take profit point is equal to the distance between point A and point B. This trader can also place a stop loss when the price is at level C (see Figure 1 above).
Although it looks profitable But basically short selling is a high-risk transaction. Because it doesn’t necessarily mean that asset prices will go down as they think. in fact It is possible that the asset price will actually increase. This means that these short sellers must return the borrowed assets to the broker at a higher price.
Descending Triangle Pros and Cons
The pros and cons of the descending triangle pattern are more or less the same as the pros and cons. triangle upThe first advantage is that this pattern is easy to find and identify. especially with the features of the charts in the current trading application
The second advantage is that this pattern can help traders set clear profit goals. as described above Traders can make profits when the price goes down (for down triangle) or higher (for triangle up) is equal to the distance between point A and point B. Traders can also begin opening positions before the pattern is fully formed. Although it is better to open positions only after the breakout.
The downside, however, is that there is still the possibility of reversal or sideways. Like the potential for false signals due to a breakout appearing as a false breakout. A true breakout can trigger a false signal if the price action after this breakout does not meet expectations.
Therefore, the price action indicator should not be used independently. But it comes with other technical indicators such as Bollinger Bands Moving Average or other statistical based technical indicators and traders should never forget to place a stop loss.
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