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A Channel Down pattern shows a clearly defined downtrend and describes the behavior of the price contained between downward sloping parallel lines. Lower lows and lower highs characterize this price pattern. This pattern is created via a lower trendline connecting the swing lows (1, 3, 5), and an upper channel line that joins the swing highs (2, 4, 6).
A breakdown below a descending channel’s resistance line points to a continuation of the decline momentum, while a break out above the channel’s resistance line can show a possible trend change.
When a security is presumed likely to remain within the channel, traders can make bets on price fluctuations within the channel trendline boundaries. This type of trading strategy can be particularly successful when a trader has identified a reversal followed by a breakout series pattern.
Selling bets can be made when the price reaches its resistance line. Going long on the security could also be profitable when a security begins to reach its support trendline.
The difference between a Channel Up and a Channel Down is the trend they describe: the former characterizes an Uptrend while the latter describes a Downtrend.
