Everything a trader and investor need to know about the descending triangle chart pattern along with real-life examples
Last week we saw the ascending triangle chart pattern. Today we will look into the descending triangle chart pattern and how an investor (not trader) but investors use it to their advantage.
The descending triangle is precisely the opposite of an ascending triangle chart pattern. It forms within a long term downtrend for bearish consolidation phase before the stock cracks below the support.
Much like the ascending triangle, the descending triangle forms a horizontal support line as the base. The highs formed from the bottom create a lower low. Joining them forms a downward trending trend line. It is only a matter of time before the support collapses followed by a very sharp downslide.
Often the descending triangle pattern is often misread even by the experts as the formation of a bottom after the downtrend.
Examples of Descending Triangle Chart Pattern
Let us look at a few examples of the descending triangle chart pattern to understand the pattern better. Moreover, we will also understand why it is common to interpret it wrongly.
First, let us look at the weekly charts of Venky’s, where I have marked a descending triangle with blue lines. I have taken the period prior to March 2020 crash to be able to understand the pattern better.
If we analyze the blue segment on the daily charts, this is what we see.
An Eight month-long (Aug to Apr) support of ₹2000 is clearly visible from the horizontal blue line.
This is when people assume there is a bottom formation.
However, in the weekly charts, we see a sharp fall from ₹4400 to ₹2000.
Such a sharp fall in such a short span of time does mean there are sellers at higher levels.
After the fall there is stability but then the stability doesn’t get people to accumulate aggressively and so the peaks are always lower than the past peaks forming a descending triangle.
Let us look at the daily charts of Bajaj Consumers, where I have marked a descending triangle with blue lines.
The support was between ₹200 to ₹220. However, the peaks are always lower than the past peaks forming a descending triangle.
So, it is a matter of time when the stock crashes below ₹200. Normally such strong support breaks are with a gap.
How to Invest with Descending Triangle Chart Pattern?
The descending triangle is a consolidation pattern within a downtrend.
So the way to invest using a descending triangle is to accumulate slowly in a fundamentally sound company that has some hiccups in the short term.
Then comes the descending triangle under technical analysis to be able to accumulate the stock which has short-term pain.
If one can identify the good companies going through a rough patch in the short term, one can invest in them.