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Descending Channel Chart Pattern

Patrick Stockdale
Written by Patrick Stockdale | May 14, 2022

What Is A Descending Channel Chart Pattern?

In technical analysis, a descending channel, also called a "bearish channel" or "declining channel", is a bearish continuation chart pattern that forms on the price charts of financial markets when the price trends lower in an orderly manner between the two parallel lines of a downward sloping resistance level and a downward sloping support level.

Descending Channel Pattern Components

Descending channel components

In order to identify a descending price channel on a price chart, there will need to be certain components visible.

The components of a descending channel are:

  • Downward sloping resistance level: This is the downtrending resistance level that connects the lower swing highs in the prices together.
  • Downward sloping support level: This is the downtrending support level that connects the lower swing lows in the prices together.

Drawing a descending channel pattern involves combining these two components together.

Descending Channel Chart Pattern Examples

Below are visual examples of the descending channel chart pattern.

Example Of A Descending Channel Pattern In The Stock Market

Descending channel in stock market

In the daily chart of Affirm Holdings, a descending channel forms. Price moves in an orderly manner within the channel range before collapsing to much lower prices.

The downward sloping resistance level of the descending channel is a low-risk short entry area when trading this pattern.

Example Of A Descending Channel In The Forex Market

Descending channel forex market

In the daily chart of EUR/GBP, a descending channel forms. The price trades within the range of the bearish channel and offers low-risk entry points as it trades near the resistance level.

Example Of A Descending Channel On A Shorter Timeframe Price Chart

Descending channel shorter timeframe chart

In the 5-minute price chart of Netflix stock, a descending channel forms. It moves lower in an orderly manner between the downward sloping resistance and the downward sloping support level.

This shows that the bearish channel can also form on shorter timeframe price charts.

Example Of A Descending Channel On A Longer Timeframe Price Chart

Descending channel longer timeframe chart

On the longer-term weekly price chart of General Motors, a descending channel formed.

It signaled a continuation lower in prices with the price of General Motors stock moving within the downtrending price channel.

How To Find Descending Channel Patterns

The methods for finding descending price channels in the markets are:

  • Using a technical analysis tool to scan: A trader can use tools for technical analysis like a technical analysis pattern scanner to automatically scan for descending channels.
  • Manually browsing through the price charts: A trader can manually browse through the price charts to try and find descending channels.
  • Using a chart pattern newsletter: Traders can find descending channel patterns in chart pattern and technical analysis newsletters. This is a particularly useful method for finding descending channels as it gives new traders access to expert's views.

Descending Channel Pattern Benefits

The benefits of the descending price channel patterns are:

  • It works in any financial market: Descending channels can form in any financial market and are not restricted to just one or a few like other technical analysis indicators.
  • It works on any timeframe price chart: A descending channel pattern can work on any timeframe so it suits both day traders, swing traders and longer-term traders.
  • It helps offer traders a low-risk entry point for capturing large bearish moves: A descending channel can be a method of joining and capturing a large bearish trend from a low-risk short entry point near the downward sloping resistance level.
  • It's easy to learn: New traders can quickly learn how to spot this pattern with just two lines needed to draw it.

Descending Channel Pattern Limitations

The limitations of descending price channel patterns are:

  • It can be difficult sometimes to pinpoint exact entry points: Sometimes the price can trade through the levels a bit higher or lower and this can confuse traders as to where to enter.
  • Using it as a buy signal can cause many losing trades: Buying the channel support of a descending channel can cause many losing trades.
  • Prices can fail at the downward sloping levels: The prices of a market can breakout or break down from the channel.

Descending Channel Formation Duration

The length of time a descending channel takes to form on a price chart will depend on the timeframe used.

Examples of how long a descending channel takes to form based on different timeframes include:

  • It takes approximately 90 minutes and above for a descending channel to form on a 1-minute price chart.
  • It takes 60 days and above and above for a descending channel to form on a daily price chart.
  • It takes approximately 60 weeks and above for a descending channel to form on a weekly price chart.

Frequently Asked Questions About The Descending Channel Pattern

Below are frequently asked questions about the descending channel chart pattern.

Is A Descending Channel Pattern A Reversal Or Continuation Pattern?

A descending channel pattern is a continuation pattern that indicates that the price of a security is bearish and trending lower within a price channel.

What Does A Descending Channel Pattern Tell You?

A descending price channel indicates that the price of a market is trending lower and the price of the market is within an orderly price range between a downward sloping resistance level and a downward sloping support level.

What Price Chart Timeframes Can A Descending Channel Pattern Form On?

A descending channel can form on any timeframe. Example timeframes where descending channel can form include short term price charts like the 1-minute and 5-minute price charts up to longer term price charts like the weekly and monthly price charts.

What Is The Difference Between A Descending Channel And A Horizontal Channel Pattern?

The differences between a descending channel and a horizontal channel are:

  • It's shape: A descending channel has two parallel declining support and resistance levels whereas a horizontal channel has two parallel horizontal support and resistance levels.
  • It's signal: A descending channel signals that the price of a market will go lower whereas a horizontal channel signals that a price of a market will move sideways in a choppy and sideways direction with no real trend.