Descending Channel

A descending channel is a bearish chart pattern formed by two downward-sloping trendlines.

1. Pattern Description:

   • The upper trendline (drawn along the highs) defines the resistance level.

   • The lower trendline (the “channel line”) runs parallel to the upper trendline and acts as support.

2. Trading Strategies for Descending Channels:

   • Short Opportunities:

     • When the price nears the upper trendline, consider short positions.

     • Aggressive traders may trade both long and short at both trendlines, anticipating a bounce or pullback.

   • Breakouts:

     • Wait for the price to break through either trendline.

     • An upside breakout signals a strong buy.

     • A downside breakout suggests significant weakness.

   • Trend Shifts:

     • A break above the upper trendline could indicate a shift in trend.

     • Breaking the lower channel line signals an acceleration of the current downtrend.

   • False Breakouts:

     • Be cautious of false or premature breakouts.

     • Sometimes, price retreats back into the channel.