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Descending channel

Spreadex financial spread betting market analysis - charts, descending channel

This bearish pattern is the exact opposite to the Ascending Channel defined by a trend line supporting the series of lower highs and a parallel resistance level connecting the lower lows.

Clearly this is a downward trend line although each sell-off finding resistance at approximately the same percentage drop adds another element to the pattern.

The common way of trading this pattern would be to trade when price is around the top trend line looking for short opportunities although somewhat aggressive traders could trade short and/or long at both trend lines looking for a bounce.

Another way to trade this pattern is to wait for price to break through either trend line as this would signal resistance has failed leaving a possible clear path for further movement in that direction.

Descending channel live spread betting example

Descending Channel financial spread betting chart formation

This is a well-defined Descending Channel with several touches on the top trend line highlighting the strong downward trend and some touches on the bottom trend line quickly followed by sharp retraces.

It would be quite possible to trade around both trend lines in this scenario. Notice how the declines become shorter further along the channel and price trades closer to the top trend line.

At the time this could have been an indication price was poised to break its trend line as selling becomes less aggressive.

The break through the trend line at 13:00 25/11/2011 is followed by another sell-off although the higher low confirms sentiment has changed from bearish to bullish.