Tutorial on Descending Channel Chart Pattern
What is Descending Channel Chart Pattern?
It is also known as Bearish Channel. It consist of two trendline parallel to each other having points forming lower highs and lower lows, thus forming a downside or bearish channel. The price is confined between the two trendlines. It consist of the following:
a. Descending Upper Trendline: Also known as the main trendline or primary trendline. It is called so because it is the one which determines the trend. It should have atleast two consecutive points forming lower highs. More point is the indication of more strength in the pattern. The main trendline acts as a resistance in descending Channel pattern
b. Descending Lower Trendline: Also known as the channel line or secondary trendline. This is drawn in parallel to the main trendline. It serves as an support in this pattern. It should also have a minimum of 2 consecutive lower lows point. More points indicates more strength in the pattern.
Breakout: It can occur in any direction upside or downside. If the breakout is in upside direction, it indicates that the downtrend is over and bulls have taken over bears and indicates a buy signal. However if the breakout is in downside direction it indicates further selling pressure and indicates a sell signal.
Volume: Like other chart pattern volume do play a vital role in reaffirming the pattern here. For a descending channel pattern the volume should decrease with the formation of the pattern and there is increase in volume activity after the breakout.
Price Target: One can roughly put a price target after a breakout, and it should be the height of the channel, however other indicators have to considered as well like volume,MACD, RSI, etc.
Duration: Channel pattern Formation takes from a few weeks to many months. Longer the duration is considered to be more reliable than the short duration one. If it is shorter than 3 weeks then it is considered to be flag rather than channel.
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