Trading requires patience and a desire to learn new skills. Of course, there will be the requisite period of trial and error and setbacks along the way. The goal is to persevere and continue honing the perfect strategies such as descending triangle pattern, cup and handle pattern that completely satisfies you. Therefore, understanding the chart formations and indicators is essential to creating a successful trading strategy. Ultimately, aiding traders in accelerating their journey toward ultimate success.
In this article we are going to descending triangles and how to trade when it appears on a crypto chart.
The opposite of an ascending triangle, which is another trend line-based chart pattern used by technical analysts, is a descending triangle.
A descending triangle alerts traders to enter the short side of the market to hasten a breakdown.
What is a descending triangle pattern?
A falling top and a flat support line should be present in the price formation of a descending triangle for a bearish pattern; breakouts may be upward or downward. In contrast, a downside breakout in a bear market can result in sizable gains.
When prices follow this pattern, they frequently drop to the same area before rising again, but each time the height of the rise is lower than the previous price. Volume is not a key benchmark because it typically exhibits a declining trend from the start of the formation. The volume will typically be relatively low prior to the breakout but will soar during the subsequent action.
As was mentioned during the ascending triangles, a breakout should not be disregarded based solely on volume action. Low volumes also see a lot of successful breakouts.
Like ascending triangles, the breakout could also occur before the point at which the support and resistance lines converge. In the formation’s body, at least two minor lows should touch the horizontal support line. Moves that touch the bottom line must be distinct, and all touches that occur during the same consolidation should be added up.
How to identify descending triangle?
In order for a pattern to be deemed a correct descending pattern, there must be more than two separate minor high-low moves in the pattern. The descending triangle won’t be valid if there aren’t enough crisscrossing movements while the pattern is being formed. Concentrating on the upward breakout in this pattern is more advantageous because it results in gains of more than 45% in bull markets and 25% in bear markets. Even a failed downward breakout causes prices to increase by more than 50% when successfully reversed in a bull market.
Usually, the target is reached much later for an upside breakout than for a downside breakout.
Example of a descending triangle pattern
As the coin price breaks through the neckline support, this bearish continuation pattern results in a major increase in selling pressure. In the Solana coin chart, the neckline support is $30, and the dynamic resistance is a descending trendline. Nonetheless, the declining trendline crossed it at the same point, forming a significant area of resistance for buyers.
The descending triangle pattern is widely used by traders most straightforwardly. They buy the triangle’s breakout, one of the many conventional ways to profit from this pattern.
How to trade a descending triangle?
Following a strong volume collapse from lower trend line support in a descending triangle pattern, traders frequently start a short position. Typically, the entry price less the vertical height between the two trend lines at the breakdown determines the price target for the chart pattern. Traders use a stop-loss level to impose a ceiling on their possible losses at the upper trend line resistance.
Technical traders have the chance to generate substantial returns swiftly. They frequently look for a move below the lower support trend line, indicating that a breakdown is about to occur. Short positions are frequently used by traders to drive down the asset’s price.
The height of the formation at the beginning of the triangle is equal to the minimum expected move of the triangle after a breakout. If the breakout is unsuccessful and extends past the other triangle boundary, immediately exit with a loss. If you follow the movement in the direction opposite to the initial trade, a busted pattern can also offer you a significant profit opportunity.
By learning about triangle formations, you have acquired a crucial tool for your successful trading journey. To successfully recognize these patterns, practice daily and test them in a practice account before using real money.
Read more: Bollinger Band: How To Trade With It In The Crypto Chart?