Descending Triangles Forex Patterns is good for expert money managers and FX traders, The Descending Triangle is the chart pattern that is formed as the continuation pattern during a downtrend. This chart pattern gives bearish signals to the traders and investors. Sometimes the Descending Triangle may also be formed as the reversal pattern at the point where an uptrend ends. It doesn’t matter whether the Descending Triangles are formed as the continuation patterns or the reversal patterns but these are always bearish chart patterns that signal distribution. The shape of this chart pattern looks like the right angled triangle. A horizontal line is formed at the bottom by connecting two or more equal low price points.
The two trend lines form this pattern. These trend lines are a flat trend line and an ascending trend line. The flat trend line acts as the support level and the ascending trend line acts as the resistance level. To confirm the Ascending Triangle pattern, the traders and investors must look for few things as explained below.
Importance of Descending Triangles In A Forex Trend
Descending Triangle is a bearish pattern and in order to analyze any pattern as a Descending Triangle pattern, there should be an established trend existing in the pattern.
Lower Horizontal Line
There should be at least 2 lows required for the formation of the horizontal line at the bottom. These lows do not need to be exact but these should be near to each other. One low should be near to the other low but after a reasonable distance. A high should also be there between the two highs.
Upper Trend line
There should be an ascending trend line at the upper side of the chart pattern. It is formed by the two highs that should be separated by some distance. The recent high should be lower than the previous high and if the recent high is equal to or higher than the previous high then it is an invalid Descending Triangle pattern.
Duration of the pattern
An average Descending Triangle pattern may last from 1-3 months and if the pattern lasts in less than a week then it is an invalid Descending Triangle pattern.
Volume contracts with the developing of pattern. If a downside breakout occurs then to confirm this breakout volume should also expand. Volume confirmation is preferred but not necessary every time. If the volume is not expanding at the breakout then the traders and investors should stay away from placing any trading order.
Moving Average should be considered. If the price of the currency touches or come closer to the 200 days moving average then the traders and investors can consider it as a strong pattern.
Return of Price of the currency to Breakout
After the support level is broken in the Ascending Triangle, it becomes the resistance level. Sometimes the price of the currency returns to the resistance level.
After the breakout has been noticed, the target in this pattern is calculated by subtracting the widest distance observed in the Descending Triangle pattern from the breakout occurring at the resistance level.
In the figure above, there are the two equal lows from where a lower horizontal line can be drawn and there are the two highs from where an upper trend Line can be drawn and these points represent a Descending Triangle Pattern. To check the validity of this pattern, recent high should be lower than the previous high and this condition holds true in the above example so it is a valid Descending Triangle Pattern.
The Forex traders and investors predicting the Descending Triangle Pattern correctly will be able to get the bearish signals with more accuracy. You can learn Forex Trading in our currency trading school for free.