How to Use the Continuation Pattern—Descending Triangle

What Is a Descending Triangle

The descending triangle is essentially the opposite of the ascending triangle. After a period of decline, the price encounters stable buying interest around a specific price zone. Each time the market falls back to this level, the decline stalls and the price rebounds. Connecting these recurring lows forms a horizontal support line.

However, each rebound peak is lower than the previous one, reflecting weakening upward momentum. Connecting these highs forms a downward-sloping resistance line. Similar to the ascending triangle, trading volume contracts gradually as the pattern develops toward its apex. See the illustration below:

How to Identify a Descending Triangle

1. Typically appears during a downtrend, though it may occasionally appear during an uptrend.
2. Each successive low is near the same horizontal level, while the highs gradually decrease. Connecting these highs and lows forms a right-angled triangle with a horizontal lower trendline.
3. Trading volume contracts progressively toward the tip of the triangle.

Technical Implications of a Descending Triangle

Since price action typically breaks downward after forming this pattern, the descending triangle signals continue weakness.

The fact that each rebound high becomes lower indicates persistent bearish pressure, increasing the likelihood of a downward breakout. When the price falls below the horizontal lower trendline, it aligns with Dow Theory’s definition of a downtrend: lower highs followed by lower lows. Therefore, the descending triangle generally suggests a bearish outlook.

Applications of the Descending Triangle

Sell Signal: When the price breaks below the triangle’s lower trendline and closes with a full-bodied bearish candlestick, the market outlook turns bearish.

Buy Signal: When the price breaks above the triangle’s upper trendline and closes with a full-bodied bullish candlestick, the outlook turns bullish.

Real-Market Example

The figure above shows the BTCUSDT daily chart on Gate futures. Between June 15 to July 21, 2021, BTC fell from a high of $58,000 to around $30,000, then entered a consolidation phase. After rebounding toward $41,000, BTC formed a contracting descending triangle. When the price rose to $32,500 and broke above the triangle’s upper trendline, it triggered a strong upward rally—the beginning of the second major leg of that bull market.

Summary

Triangle consolidation patterns are widely used and frequently observed in actual trading, consistent with Dow Theory’s view on trend movements. In addition to standard formations, irregular variations appear even more often in practice and should be applied flexibly in real-market scenarios.

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Disclaimer

This article is for reference only. Information provided by Gate does not constitute investment advice and Gate is not responsible for your investment decisions. Technical analysis, market judgment, trading strategies, and trader insights may involve potential risks, investment variability, and uncertainties. Nothing in this article guarantees returns or implies risk-free opportunities.