Before a kickback rally to an intermediate resistance level, a descending triangle will start with a rapid decline to a new low. A second decline will then compete with the first low before a second rally comes close to the intermediate resistance level; a third and final decline will complete the pattern to new lows, strong volume.
By taking the height of the triangle and adding this to the breakout level, the technical target can be derived. Normally forming a downward trend, the descending triangle is considered a bearish formation as a continuation pattern. Even though they are mostly seen as continuation patterns, it is possible for them to form as reverse patterns. Regardless which way, they are still bearish patterns indicating distribution.
When assessing the triangle, the horizontal base line is considered to be the demand by which the security will never fall below. In buying terms, it is just like a huge buy order that is being process but hasn't yet been executed; this is holding the price stable and preventing any further declines. It should be noted that despite the lack of declines, the reactions highs will continue to fall. As a result, selling pressure increases and the descending triangle has its bearish characteristics. From the many diagrams you will see, you will notice that it also looks like a right-angled triangle which is why it is often given this name.
Upper Descending Trend - For the upper trend line to be formed, there needs to be at least two reaction highs and they need to be lower than the last in order to slope downwards. Also, there needs to be a little distance in between each high.
Base Horizontal Line - Similarly, there also has to be two reaction lows if the horizontal line is to be formed. Although they don’t have to be exactly the same, they normally fall close to each other with some distance keeping them apart.
Volume - Although it isn't always necessary, confirmation is preferred and the volume will normally contract as the pattern continues to develop. For confirmation, an expansion of volume would normally be seen after the downside break.
Duration - With the average lasting around one to three months, they can generally run for weeks or even a few months.
Target - By taking the resistance breakout and then subtracting the widest distance of the pattern, you can work out the overall price projection after the breakout has occurred.
Return to Breakout - Before the down move begins, there may be occasions where there is a return to breakout.