Highlights ①. Gate's "Basic Futures Contracts" course introduces various methods of technical analysis that are commonly employed in futures trading. The aim of these courses is to help traders establish a comprehensive framework for technical analysis. Covered topics include the basics of Candlestick charts, technical patterns, moving averages, trend lines, and the application of technical indicators. ②. In Course XII of the "Master Technical Analysis" series, this article introduces the candlestick pattern known as the "Descending Triangle." It delves into the concept, characteristics, technical significance, and its application in trading of this pattern.
I. What Is a Descending Triangle? The descending triangle is the converse of the ascending triangle. It charts a price trajectory where the price initially declines, hits support at a certain level, and then rebounds upwards. This level becomes a recurrent point of support for all subsequent bearish movements over a certain period: every time the price reaches this level, it rebounds upwards. By connecting these low points, we can draw a horizontal line, representing one side of the descending triangle.
Conversely, with each rebound, the price reaches a peak that's lower than the previous one. Linking all these peaks produces a downward-sloping line, defining the other side of the triangle. Similar to the ascending triangle, the overall trading volume typically diminishes from the left to the right end of the triangle. Below is an example of a descending triangle:
II. How to Identify a Descending Triangle? ①. It commonly manifests during a downward trend, but can also occasionally appear in an upward trend. ②. The price touches a series of lows, all roughly at the same level, but concurrently registers highs that progressively decrease. Connecting these highs and lows forms a right-angled triangle, with the horizontal line as its base. ③. Volume typically diminishes from the broader end of the triangle towards its narrowing point.
III. What is the technical meaning of a Descending Triangle ? After the formation of a descending triangle, it's typically breached at the lower edge, signaling a potential for a bearish market. This tendency is why it's termed a "descending triangle."
In a descending triangle, each subsequent peak is lower than its predecessor, inherently pointing to a bearish trend and suggesting a higher likelihood of a downward breakout. This pattern aligns with the Dow Theory's characterization of a downward trend: sequences of highs and lows, where each new high is lower than the previous, and each new low is likewise lower than the one before. Hence, the pattern frequently emerges during a bearish phase and often foretells a continuation of the downward trend.
IV. Application
①. When the price breaks below the lower boundary of the descending triangle, with a red candlestick formed that day, it suggests an opportunity to sell. The below shows the position of the sell opportunity.
②.When the price breaks above the upper boundary of the descending triangle, with a green candletick formed that day, it suggests a chance to buy more assets. The below shows the time of a buy opportunity.
V. Use Case
The image depicts the daily candlestick chart of Gate BTC futures. Between June 15, 2021, and July 21, 2021, BTC plummeted from a peak of $58,000 to roughly $30,000. This drop was followed by a period of sideways consolidation. After rebounding to approximately $41,000, it started to form a descending triangle pattern. However, when the price reached $32,500, it breached the upper boundary of the descending triangle, leading to a fresh upward trend that propelled the market to a new high.
VI. Summary
DT is a widely recognized candlestick pattern, frequently utilized by traders in real-world trading situations. Its technical interpretation is anchored in Dow Theory. While the pattern might not always appear in its textbook form, it often presents in various modifications. For practical trading applications, we recommend a flexible approach when interpreting this pattern.
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Disclaimer This article is for informational purposes only and does not constitute investment advice. Gate is not responsible for any investment decisions you make. Content related to technical analysis, market assessments, trading skills, and traders' insights should not be considered a basis for investment. Investing carries potential risks and uncertainties. This article offers no guarantees or assurances of returns on any type of investment.
