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In technical analysis, the descending triangle is a continuation pattern that occurs in a downtrend after a consolidation period. It is formed by two trend lines: A descending trend line and a horizontal line or support line. A bearish signal is generated when the close price moves below the support line, which become a resistance line and is used by technical analysts to exit their position when the price movement reverses direction.
This trading indicator detects descending triangle patterns by returning a value of one on the corresponding bars. It may return one on successive bars and this means that the pattern was recognized on all these bars (The signals usually refer to the same pattern).
The Trading indicator is called "DescendingTriangle" and here are its parameters: (The ascending triangle indicator has also the same parameters)
Percentage decrease: The percentage decreases in the stock, currency or futures price that is required.
Ratio: The ratio of the triangle height to the the distance between the trend line and the support line. The default value is set to three.
Period: The maximum period, in number of bars, that is allowed so that all conditions of the pattern formation are met.
After: The minimum period of the pattern formation.
The implementation of this continuation pattern uses the advanced rule syntax (searchfor). It searches for stocks that decreased by a given percentage, traded below a descending trend line and had a distance between the support line and the upper trend line less than the third of the maximum triangle height. The indicator can be used as any other technical analysis indicators by the screener, watch list plug-in, simulator, backtester...
There is also a downloader that gets ascending and descending triangle pattern signals from Finviz website for US stocks. This trading object can be downloaded here Ascending and Descending Triangle Patterns.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
