A descending triangle is a bearish chart pattern often observed in technical analysis of financial markets, including cryptocurrency markets. It’s characterised by two trendlines: a horizontal line that connects a series of similar lows, which represents a support level; and a descending upper trendline that connects a series of lower highs, indicating a downward trend in the asset’s price. These lines form a triangle shape, with the price oscillating between them.
Descending triangles typically indicate a continuation pattern, suggesting that the price is likely to break out below the support level and continue its downward movement. However, breakouts can also occur in the opposite direction, leading to a bullish trend reversal.
Volume analysis is crucial in confirming the validity of a descending triangle pattern. Typically, traders look for increasing volume as the price approaches the apex of the triangle, indicating potential for a breakout. They often use the height of the triangle at its widest point (from the initial high to the support line) to estimate a price target for the breakout. This target is projected downward from the breakout point for a bearish breakout; for a bullish breakout, the target is projected upward.
Traders typically wait for a confirmed breakout before taking action. A bearish breakout is confirmed when the price closes below the support level with increasing volume, while a bullish breakout is confirmed by a close above the upper trendline with strong volume.
