A bearish price structure defined by two parallel downward-sloping trendlines. Price bounces between resistance (upper line) and support (lower line) as the trend moves lower.
What Is a Descending Channel?
A descending channel (also called a falling channel) consists of two parallel downward-sloping trendlines. The upper trendline connects a series of lower highs and acts as Resistance. The lower trendline connects a series of lower lows and acts as Support. Price moves between these lines in a controlled decline.
Trading the Descending Channel
Within the channel, sell at the upper trendline and cover at the lower trendline. On USD/JPY, a rally to the upper trendline accompanied by a bearish candle like a Shooting Star provides a short entry with a stop above the line.
More significantly, a break above the upper trendline signals that the Downtrend may be ending. This Breakout is a bullish signal. Enter long on a confirmed close above the upper trendline with a target equal to the channel's width.
Channel Reliability
The more times price touches and respects each trendline, the more significant the channel becomes. However, channels do not last forever. Eventually, momentum shifts and price breaks out. In a descending channel, the break above the upper trendline is the higher-probability trade because it represents a trend change, while trading within the channel means trading against the prevailing direction of the broader market.
Related Terms
Ascending Channel
A bullish price structure defined by two parallel upward-sloping trendlines. Price bounces between support (lower line) and resistance (upper line) as the trend moves higher.
Downtrend
A market condition where the price consistently makes lower highs and lower lows, indicating that sellers are in control and the overall direction is downward.
Support
A price level where buying interest is strong enough to prevent further decline. The price tends to bounce upward when it reaches support.
Resistance
A price level where selling interest is strong enough to prevent further advance. The price tends to reverse downward when it reaches resistance.
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