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A descending channel is a bearish continuation chart pattern.
How do you recognise it?
- A downtrend comes before the pattern
- Price moves between two parallel, downward-sloping trendlines that form a channel
- Support and resistance are tested repeatedly
- Price swings inside the channel until it breaks out
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Don't confuse it with a bear flag, where the price consolidation is both short and upward-sloping.
How do you trade it?
The simplest approach is to wait for a break below support.
Some traders look to open a short position there, with a stop-loss above the broken support or the most recent high.
You can then set the take-profit by projecting the channel's height downwards from the breakout point.
Note: the descending channel is the opposite of the ascending channel, which follows the same logic in an uptrend.
