Buying an asset in a downtrend is usually a dangerous maneuver as most buyers struggle to spot reversals and if the pattern deepens, traders can expect huge losses. In such cases, figuring out descending channel patterns can help traders deter themselves from buying in a bearish pattern.
A “descending channel,” also known as a “bearish value channel,” is formed by drawing two parallel downtrend tracks that constrain the asset’s movement in value.
Descending channel bases
In a downtrend, movement in value is a collection of decreasing highs and decreasing lows. A descending channel is drawn by connecting the decreasing highs and decreasing lows with parallel pattern tracks. The main pattern line is drawn first at the point where two or additional tapping tops are connected. Then a parallel line, also known as the channel line, is drawn connecting the decrease lows.
Movement in value within a descending channel continues to move south as the bears advance to the main pattern line on each recovery rally.
The asset in the graph above is in a downtrend with decreasing highs and decreasing lows. The main pattern line is drawn by connecting two decreasing highs (known as ellipses), while the parallel channel line is drawn by connecting the 2 response lows.
When the value hits the channel line, the bulls think the value is attractive and buy, but the bears are in no mood to let the bull do their factor. They benefit when the value reaches the main pattern line and the pattern stays down.
Buying and selling across the channel is often random, but tied between the two parallel lanes. A break below the channel means the bearish momentum has increased and this could lead to a bearish transfer.
Conversely, a break within the descending channel means a feasible pattern reversal. Usually these breakouts create a brand new uptrend, but on various events the movement in value spreads earlier than the downtrend resumes.
Descending canal eruptions
The graphic above shows THETA tokens in a descending channel where the main trend line is formed by connecting the two decline peaks of April 16 and May 9. The parallel line drawn by the April 18 response low varies the channel line.
As can be seen above, the movement in value is basically trapped between these two tracks. The bulls drove the value across the Channel on June 17th but were unable to hold larger ranges. The bears returned to the canal shortly afterwards and caught the aggressive bulls.
There were some peaks below the channel line, but the long tails of the candles show that the bulls have benefited from these slumps to buy. This shows how the tracks act as sturdy support and resistance.
Eventually the value broke the channel on July 24th and after a slight consolidation, the rebound continued. This confirmed an official breakout, suggesting a feasible turnaround.
Monero (XMR) peaked on June 23, 2019, after which a downward pattern began. The channel’s primary pattern line was formed by connecting the decline highs of July 8, 2019 and August 8, 2019, while the channel line was drawn from the July 16, 2019 low. The XMR / USDT pair continued to trade across the channel through January 4, 2020.
The bulls pushed and closed the value across the channel on January 5, 2020. This signaled a feasible turnaround. The objective purpose is achieved by including the top of the channel in the breakout phase.
In the above case, the depth of the channel was $ 31.50. Add that to the breakout period at $ 51.80 and the target is at $ 83.30. The pair barely beat the sample target, falling from $ 96.90 on February 15, 2020.
This implies that traders should use the target as information but, after analyzing various supporting indicators and patterns, decide to close the place.
Descending channel divisions
Terra’s LUNA token peaked at $ 22.40 on March 21. After that, buying and selling began within a descending channel sample. The bears dragged the value below the channel line on April 18 but failed to sustain the downside ranges. The bulls pushed value into the channel again on April 23, capturing the aggressive bears.
The sellers broke below the canal line again on May 19. An attempt by the bulls to push the value back into the channel failed on May 20th and 21st, confirming a solid breakthrough. The mannequin collapse target was $ 5.10 and the LUNA / USDT pair bottomed out at $ 3.91.
Be careful not to confuse bull flags with descending channels
Bitcoin (BTC) rebounded sharply from $ 17,572.33 on December 11, 2020 to $ 41,950 on January 8, 2021. The value then corrected within two parallel tracks that represented a bullish flag test, but possibly simply with one descending channel could be confused.
Thomas Bulkowski, creator of the Encyclopedia of Chart Patterns, says if a sample is less than three weeks in size, it’s a flag, but longer than a channel.
In the above case, the correction took just over three weeks and the value resumed its upward movement after breaking out of the flag.
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