Buying an asset in a downtrend can exist a risky maneuver because most investors struggle to spot reversals and as the trend deepens traders accept on deep losses. In instances similar these, being able to spot descending channel patterns tin help traders avoid buying in a surly tendency.

A "descending channel," besides known every bit a "bearish price channel" is formed by drawing ii down trendlines, parallel to each other, which confine the price activity of the asset.

Descending aqueduct nuts

In a downtrend, the price activity forms a series of lower highs and lower lows. A descending channel is drawn by joining the lower highs and the lower lows using parallel trendlines. The principal trendline is drawn beginning where ii or more than lower highs are connected. Then a parallel line, as well called the channel line, is drawn connecting the lower lows.

The price action inside a descending aqueduct continues to move south as bears sell on any relief rallies to the primary trendline.

Descending channel pattern. Source: TradingView

The asset in the chart above is in a downtrend, forming lower highs and lower lows. The master trendline is fatigued by joining two lower highs (marked equally ellipses) while the parallel channel line is fatigued past joining the two reaction lows.

When the price reaches the channel line, bulls believe that the price has become bonny and they buy, but the bears are in no mood to permit the bulls to have their fashion. They sell when the price reaches the main trendline and the tendency remains downwards.

The trading inside the aqueduct is usually random but leap betwixt the two parallel lines. A break beneath the channel indicates that the bearish momentum has picked up and that could upshot in a fasten downward.

Conversely, a breakout of the descending aqueduct suggests a possible change in trend. Sometimes these breakouts consequence in a new uptrend, but on other occasions the price action forms a range before resuming the downtrend.

Descending channel breakouts

THETA/USDT daily chart. Source: TradingView

The chart above shows THETA token in a descending aqueduct where the main trendline is formed by joining the 2 lower highs fabricated on April 16 and May 9. The parallel line drawn from the reaction depression on Apr 18 forms the channel line.

As seen to a higher place, the price action is largely caged between these 2 lines. The bulls pushed the price above the channel on June 17 but could non sustain the higher levels. The bears again quickly pulled the cost back into the channel, trapping the aggressive bulls.

In that location were a few spikes below the channel line but the long tails on the candlesticks show that bulls used these dips to buy. This shows how the lines act as strong back up and resistance.

Finally, the cost bankrupt in a higher place the channel on July 24, and subsequently a minor consolidation, the recovery connected. This confirmed a legitimate breakout, indicating a possible trend change.

XMR/USDT daily chart. Source: TradingView

Monero (XMR) topped out on June 23, 2022, and then started a downtrend. The main trendline of the channel was formed by connecting the lower highs on July viii, 2022, and Aug. eight, 2022, while the channel line was fatigued from the low on July xvi, 2022. The XMR/USDT pair continued to trade inside the aqueduct until Jan. 4, 2022.

The bulls pushed and closed the price above the channel on Jan. 5, 2022. This signaled a possible change in trend. The target objective can be arrived at by adding the height of the aqueduct to the breakout level.

In the above example, the depth of the aqueduct was $31.l. Adding this to the breakout level at $51.80, gave a target objective of $83.thirty. The pair easily exceeded the design target and turned down from $96.90 on Feb. xv, 2022.

This suggests that traders should employ the target as a guide but decide on closing the position subsequently analyzing other supportive indicators and patterns.

Descending channel breakdowns

LUNA/USDT daily chart. Source: TradingView

Terra's LUNA token topped out at $22.xl on March 21. Thereafter, it started trading within a descending channel design. The bears pulled the price beneath the channel line on Apr 18 only they could not sustain the lower levels. The bulls pushed the cost back into the channel on April 23 and trapped the aggressive bears.

The sellers again broke below the aqueduct line on May 19. Attempts by the bulls to push button the price back into the channel failed on May twenty and May 21, confirming a valid breakdown. The pattern target of the breakdown was $five.10 and the LUNA/USDT pair bottomed out at $3.91.

Take care to non mix up balderdash flags and descending channels

BTC/USDT daily chart. Source: TradingView

Bitcoin (BTC) rallied sharply from $17,572.33 on Dec. 11, 2022 to $41,950 on January. 8, 2022. Subsequently, the price corrected within ii parallel lines, which was a bullish flag pattern but could have been easily mistaken for a descending channel.

Thomas Bulkowski, author of the book Encyclopedia of Chart Patterns, says when a blueprint is less than three weeks long, it is a flag, merely longer than that can exist considered equally a channel.

In the above example, the correction lasted for just over 3 weeks and the price resumed its upwardly-motility later breaking out of the flag.

The views and opinions expressed here are solely those of the writer and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves chance, you should conduct your own research when making a decision.