Sunday, December 12, 2010

Forex Descending Triangle Chart Pattern

This pattern is similar tho the ascending triangle chart pattern but reverse, it shows two converging trendlines (support levels & resistance levels) and is a bearisch formation that usually forms during a currency pair downtrend as a continuation pattern (downtrend will continue).

This pattern is confirmed when the currency pair price breaks out of the descending triangle formation to the downside and closes below the lower support trendline. However, when the currency pair price breaks out to the upside, the descending triangle now is a reversal pattern.

What does a Descending Triangle Formation look like? 
Descending Triangle Formation
The descending triangle is marked by two important trend lines. At its top, there is a line of resistance where traders are willing to sell the currency pair. This resistance line communicates the fact that bearish currency traders are over time willing to pay lower and lower prices for the currency pair indicating a break out to the downside.

At it's bottom, we notice the support trend line where forex traders are willing to buy the currency pair.

How to trade this pattern? 

Sell the currency pair when price breaks out of the descending triangle formation to the downside and closes below the lower support trendline.

Chart example

GBP/USD 1 Hour Chart Ascending Triangle continuation pattern
GBP/USD 1 Hour Chart Ascending Triangle continuation pattern.

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