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Descending Triangle Patterns

Descending Triangle on USDJPY

Descending Triangle on USDJPY

Descending Triangle on USDJPY is a classical chart pattern which is located at the end of a strong correction. Therefore, it has bearish implications.

The premise

Let’s take a look at the daily chart of the USDJPY currency pair. We’ll see that we have a downtrend, a wide pullback (ascending channel), a drop and a strong correction after the drop. And, at the end of this correction we have our descending triangle pattern.

descending-triangle-on-usdjpy-detail
Descending triangle pattern on USDJPY daily chart detail

How did I trade the descending triangle on USDJPY?

The first important thing to mention here is that the USDJPY is usually a choppy currency pair. So, this is only my second trade of USDJPY in the last four months. You can find the first one here: Inverted Head and Shoulders on USDJPY. And, I also need to mention that I usually try two times to trade a pattern and then I move on to the next one. So, in the case of the descending triangle on USDJPY I placed my first sell stop order slightly below the support. In this case I used the April 15th 2020 daily candle low as support. Consequently my order is open on April 28th.

The outcome

The first daily candle was a bearish one which was good. But, on April 30th a short rally of the dollar stopped me out for a full initial risk (0.6%). As a detail, I need to say that after the huge volatility from March I decided to lower my risk from 0.8% to 0.5% per trade. And that’s because after every volatility period will always come a consolidation phase. So, after I was stopped once from USDJPY trade, I still watched the pair. And, on May 6th the price broke the low of the April 29th. Therefore, I placed my second sell stop order. But, after this day, the price went up again and at the end of the week I decided to manually close the trade for a 0.5% loss.

the-outcome-of-the-descending-triangle-on-usdjpy
The outcome of the descending triangle on USDJPY daily chart

I decided to close my position on Friday, because it was pretty clear to me that there are not sellers in that area. And, if you take a look at the next Monday’s daily candle, you’ll see that this was a correct decision. Of course, one may argue that there is a possibility for the price to go down. And this is perfectly true. But, from my point of view, a strong breakout, should be a straight move with a very shallow retest of the previous support or resistance. Therefore, in this case, I considered much more important to protect my capital than to chase an already weakened trade.

The conclusion

In my opinion, this is one of the most interesting patterns from the last twelve months. And, even it was a loss, it reminded me the importance of the protection of the trading capital. It also reminded me of the importance of a proper risk and money management, no matter how confident a trader is on a given trade.

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