The Channel Down pattern is identified when there are two parallel lines, both moving down to the right across respective peaks (upper line) and bottoms (lower line). The upper line is identified first, as running along the peaks: it defines the trendline. The lower line (or, the channel line) is identified as parallel to the trendline, running across the first prominent bottom. When in the channel, prices are expected to bounce off both upper and lower boundaries; the more such reversals occur, the more reliable the pattern.
Breakouts from the Channel Down can occur in both upward and downward directions, each having the opposite meaning. When the price breaks through the trendline, it might indicate a change in trend. Breaking through the channel line, on the contrary, suggests acceleration of the existing trend. Note, however, that just like all the other patterns, channels might be prone to false or premature breakouts, which means that price sometimes retreats back into the channel.
Another strategy for using the Channel Down pattern is to identify where the price fails to reach the lower line, which may suggest trend exhaustion. This could be an early warning that the trend is going to reverse: the breach of the trendline may be more likely to happen.
For educational purposes only. Not a recommendation of a specific security or investment strategy.
Technical analysis is not recommended as a sole means of investment research.
Past performance of a security or strategy does not guarantee future results or success.