This pattern is characterized by two main components –

Lower Trendline (Support Line): The lower trendline is horizontal and acts as a level of support, connecting at least two or more low points on the price chart. This line represents a price level where sellers are reluctant to push the price below.

Upper Trendline (Descending Resistance Line): The upper trendline slopes downward and connects at least two or more lower highs on the price chart. This line represents a declining resistance level that prevents the price from rising significantly.

Here’s a breakdown of the key characteristics and interpretation of a descending triangle pattern –

Duration: Descending triangles can form over various timeframes, from short-term intraday patterns to longer-term patterns on daily or weekly charts.

Volume: During the formation of a descending triangle, trading volume often decreases as the pattern progresses. Lower volume indicates a lack of enthusiasm from both buyers and sellers.

Price Breakout: The pattern suggests that the price is compressing and coiling within the triangle. Traders typically expect a price breakout as the pattern nears its apex (the point where the two trendlines converge). The breakout can occur to the downside, confirming the bearish bias of the pattern, or occasionally, there may be a false breakout to the upside before the price moves lower.

Price Target: To estimate the price target of a descending triangle pattern, measure the height of the triangle at its widest point (the vertical distance between the support and resistance lines) and project it downward from the point of the breakout. This projected distance gives you a potential price target for the downward move.

Confirmation: Traders often wait for a confirmed breakout, where the price closes convincingly below the lower trendline (support line) before taking a bearish position. Some traders may use other technical indicators or oscillators to confirm the breakout.

Stop Loss and Risk Management: Traders should use appropriate risk management techniques, including stop-loss orders, to manage potential losses if the trade goes against them.