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Traders know not to ‘go long’ when this classic trading pattern shows up

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Traders know not to ‘go long’ when this classic trading pattern shows up

Buying an asset in a downtrend can be a risky maneuver because most investors struggle to spot reversals and as the trend deepens traders take on deep losses. In instances like these, being able to spot descending channel patterns can help traders avoid buying in a bearish trend.

A “descending channel,” also known as a “bearish price channel” is formed by drawing two downward trendlines, parallel to each other, which confine the price action of the asset.

Descending channel basics

In a downtrend, the price action 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 main trendline is drawn first where two or more lower highs are connected. Then a parallel line, also called the channel line, is drawn connecting the lower lows.

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

Descending channel pattern. Source: TradingView

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

When the price reaches the channel line, bulls believe that the price has become attractive and they buy, but the bears are in no mood to allow the bulls to have their way. They sell when the price reaches the main trendline and the trend remains down.

The trading inside the channel is usually random but bound between the two parallel lines. A break below the channel indicates that the bearish momentum has picked up and that could result in a spike down.

Conversely, a breakout of the descending channel suggests a possible change in trend. Sometimes these breakouts result 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 channel where the main trendline is formed by joining the two lower highs made on April 16 and May 9. The parallel line drawn from the reaction low on April 18 forms the channel line.

As seen above, the price action is largely caged between these two lines. The bulls pushed the price above the channel on June 17 but could not sustain the higher levels. The bears again quickly pulled the price back into the channel, trapping the aggressive bulls.

There 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 support and resistance.

Finally, the price broke above the channel on July 24 and after a minor consolidation, the recovery continued. This confirmed a legitimate breakout, indicating a possible trend change.

XMR/USDT daily chart. Source: TradingView

Monero (XMR) topped out on June 23, 2019, and then started a downtrend. The main trendline of the channel was formed by connecting the lower highs on July 8, 2019, and Aug. 8, 2019, while the channel line was drawn from the low on July 16, 2019. The XMR/USDT pair continued to trade inside the channel until Jan. 4, 2020.

The bulls pushed and closed the price above the channel on Jan. 5, 2020. This signaled a possible change in trend. The target objective can be arrived at by adding the height of the channel to the breakout level.

In the above case, the depth of the channel was $31.50. Adding this to the breakout level at $51.80, gave a target objective of $83.30. The pair easily exceeded the pattern target and turned down from $96.90 on Feb. 15, 2020.

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

Descending channel breakdowns

LUNA/USDT daily chart. Source: TradingView

Terra’s LUNA token topped out at $22.40 on March 21. Thereafter, it started trading inside a descending channel pattern. The bears pulled the price below the channel line on April 18 but they could not sustain the lower levels. The bulls pushed the price back into the channel on April 23 and trapped the aggressive bears.

The sellers again broke below the channel line on May 19. Attempts by the bulls to push the price back into the channel failed on May 20 and May 21, confirming a valid breakdown. The pattern target of the breakdown was $5.10 and the LUNA/USDT pair bottomed out at $3.91.

Take care to not mix up bull flags and descending channels

BTC/USDT daily chart. Source: TradingView

Bitcoin (BTC) rallied sharply from $17,572.33 on Dec. 11, 2020 to $41,950 on Jan. 8, 2021. Subsequently, the price corrected inside two 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 pattern is less than three weeks long, it is a flag, but longer than that can be considered as a channel.

In the above example, the correction lasted for just over three weeks and the price resumed its up-move after breaking out of the flag.

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

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Bitcoin (BTC) Drops Below $60,000 But Correction Could Be Short-Lived

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Bitcoin (BTC) Drops Below $60,000 But Correction Could Be Short-Lived

Bitcoin (BTC) is likely in the middle of a short-term correction that has taken it below $60,000. Following this correction, a rebound in price is likely. 

BTC decreased considerably on Oct 26 and created a bearish engulfing candlestick.  This is a type of bearish candlestick in which the entire upward movement from the previous day is negated with an equal or larger drop the next day.

The main support area is found between $52,400 and $53,350. This range is made up of a short (white) and a long-term (black) Fib retracement level and a horizontal support area. There is also a minor support level at $56,550, created by only the short-term Fib level. 

Technical indicators support the continuation of the decrease.

The MACD, which is created by short and long-term moving averages (MA) is falling. Currently, the MACD is still positive, indicating that the short-term trend is moving faster than the long-term trend. However, it’s decreasing, signaling that the MA is decelerating.

The RSI, which is a momentum indicator is also decreasing. It’s above 50, signaling that momentum is still bullish, but the decreasing RSI indicates that momentum is also losing strength.

BTC gets rejected

The six-hour chart shows that BTC is moving underneath a descending resistance line since the Oct 20 all-time high price. 

More recently, the line rejected the price on Oct 25 (red icon), initiating the current downward move. The rejection also coincided with the $63,650 resistance area.

As long as the descending line remains unbroken, the short-term trend is considered bearish.

Wave count

The short-term wave count shows that BTC is likely in an A-B-C correction, which is potentially contained inside a parallel channel. For a long-term wave count analysis, click here.

Currently, BTC is in the C wave, which is the final portion of the correction and after which a rebound in price is likely.

There is considerable support near $56,500 and a drop to those levels would give waves A:C an exact 1:1 ratio. Furthermore, it would coincide with the support line of the channel. In addition to this, the area coincides with the short-term Fib support outlined in the first section. 

For BeInCrypto’s previous Bitcoin (BTC) analysis, click here.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Bitcoin drops $1K in five minutes in fresh dip below $60K

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Bitcoin drops $1K in five minutes in fresh dip below $60K

Ethereum slips below $4,000 as an anticipated correction suddenly takes hold of crypto markets.

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Bitcoin drops K in five minutes in fresh dip below K

Bitcoin (BTC) fell sharply on Oct. 27 as $60,000 finally gave way to two-week lows.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

Bitcoin bites into major buy wal

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD nearing $58,000 at the time of writing, hitting its lowest since Oct. 15.

The move follows multiple retests of $60,000, with Bitcoin now taking liquidity in a large support wall with $57,000 as its base.

Analysts, as Cointelegraph reported, were already prepared, with some data suggesting a deeper dive to a low as $50,000 would still preserve the overall bull trend.

#Bitcoin couldn’t break through $63.6K and tests the other side of the range.

Might be dropping another time if $61.6K can’t break and then I’m looking at $58K next. pic.twitter.com/HIsvhE5ZlZ

— Michaël van de Poppe (@CryptoMichNL) October 27, 2021

Commenting on the situation meanwhile, Charles Edwards, CEO of investment firm Capriole, blamed leveraged traders for sparking the volatility.

“Basically Bitcoin looks incredible here on most metrics, but leverage traders have gone out of control,” he argued.

“We won’t get sustainable price rises until that changes.”

Data showed $500 million being liquidated in a single hour across cryptocurrency.

Altcoins lose big on trend reversal

Ether (ETH) led a bleed from altcoins Wednesday, falling below its hard-won $4,000 support line.

ETH/USD 1-hour candle chart (Bitstamp). Source: TradingView

Related: Expanding ecosystem and $1.86B futures open interest back Solana’s $250 target

Several of the top ten cryptocurrencies by market cap saw daily losses of over 15%, including Dogecoin (DOGE) and Solana (SOL).

Shiba Inu (SHIB) was still largely in the green, up 23% on the day despite the market turnaround and continuing a wild month.

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Redditors cheer as GameStop assembles team of NFT experts

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Redditors cheer as GameStop assembles team of NFT experts

“Future creators won’t just build games but also the components, characters, and equipment. Blockchains will power the commerce underneath,” Gamestop’s Head of Web3 Gaming job listing reads.

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Redditors cheer as GameStop assembles team of NFT experts

GameStop (GME) is assembling a team of blockchain and NFT experts to work on the firm’s upcoming NFT platform.

The firm’s GME stock is a cult favorite amongst retail traders as a result of the r/wallstreetbets and Robinhood saga earlier this year. On Reddit the r/Superstonk community boasts 659,000 members, and is dedicated to hosting business and stock discussions related to GME.

A post about GameStop’s job listings yesterday has received more than 10,000 upvotes at the time of writing, with many members posting bullish sentiments over GameStop’s latest move.

GameStop quietly unveiled a bare-bones website for its NFT marketplace in May. The site currently features a Nintendo Gameboy-style gaming console with an Ethereum logo, along with a message calling out for recruits to work on the platform.

Since then the firm has held its cards close to its chest, however on Oct. 25 it listed a total of eight jobs for crypto-friendly candidates, including three roles for NFT experienced software engineers, three jobs for product marketers and with two roles focused on Web3 based gaming.

One of the listings for the Head of Web3 Gaming job says that GameStop is looking for someone with experience with “Ethereum, NFTs and blockchain-based gaming platforms.” The firm has also hinted that there are some plans related to the Metaverse in the works.

“GameStop is looking for a unique individual who can help accelerate the future of gaming and commerce. In this future, games are the places to go, and play is driven by the things you bring. Future creators won’t just build games but also the components, characters, and equipment. Blockchains will power the commerce underneath,” the job listing reads.

Web3, billions in revenue, NFTs, Ethereum Layer 2. probably nothing. $GME pic.twitter.com/s3PiaqtWQl

— Chris SilvΞstro (@vestro) October 26, 2021

Related: Reddit may be preparing to launch its own NFT platform

Members of the r/Superstonk community were singing the firm’s praises yesterday, with “Triaspia2” calling it one of the “best job listings” they had seen, while pledging to buy more GME as it was a “bullish signal.”

Redditor “Donnybiceps” was equally bullish, noting that:

“NFTs are the future and people who haven’t gotten on board the GME train while knowing all these clues then you should be blaming yourself for not thinking this through.”

GME has had a volatile performance in October, going as low as $166 before bouncing to around $187 and subsequently crashing down again. However, according to data from Tradingview, the price of GME has still gained 2.8% this month to sit at $178 at the time of writing. The year-to-date gain for GME is a whopping 844%.

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