BTCUSD 4H 1H DESCENDING CHANNEL BEARISH BREAKOUTStep#1: Draw a Price Channel if you are able to see at least two Higher Highs and Higher Lows. The Price Channel pattern is drawn by connecting the highs and lows.
During this stage, we’re looking for distinctive price action that can be contained within two parallel lines. These lines will ultimately form the Price Channel Pattern.
If you’re able to spot two consecutive swing highs followed by two consecutive two higher lows you simply connect these points using the Price Channel tool.
The majority of the trading platforms has incorporated into their default trading tools the Price Channel indicator.
Step #2: Wait for a Swing High to fail to reach the top of the Price Channel pattern.
In the case of an ascending or upward Price Channel pattern the first warning signal that the price will fail to trade within the boundaries set by the Price Channel Pattern presents itself when the last swing high point fails to reach the top of the channel.
Only our Price Channel trading strategy makes use of this powerful price reading technique because our team at Trading Strategy Guide has developed the “early signs” of Price Channel breakout.
The fail attempt to test again the top of the Price Channel is a sign of price weakness which is confirmed when the price also fails to bounce off the Price Channel bottom and breaks it instead.
Note* - The more times a swing High fails to reach the top of the Price Channel pattern the better the trade setup
Step #3: Wait for the Price Channel breakout and for breakout confirmation
One of the worst mistakes traders does when trading Price Channel patterns is that they don’t wait for confirmation signal when the breakout happens.
You should always wait for breakout confirmation!
What do we mean by breakout confirmation?
In simple terms, we want the breakout candle to post a close below the Price Channel bottom to confirm the breakout. We also have training on How to use Japanese Candlesticks.
So we don’t just wait for the Price Channel breakout, but instead, we also want to see the breakout candle closing below the Price Channel pattern. This is a very simple way to avoid many of the false breakout signals.
Note* - The breakout candle needs to be a big decisive looking candle, but it’s not mandatory
Step #4: Sell right at the Breakout Candle Closing Price
The Price Channel trading strategy uses a very simple trade entry technique.
A sell order is triggered at the breakout candle closing price.
The Price Channel breakout technique provides us with an entry signal that you can be confident in executing the trade.
The next logical thing we need to establish for the Price Channel trading strategy is where to take profits.
Step #5: Take Profit 1 at the 50% Fibonacci Retracement of the previous trend, Take Profit 2 at the starting point of the Price Channel
The Price Channel trading strategy employs multiple entry techniques.
Our first potential take profit zone is the 50% Fibonacci retracement of the previous trend.
What do we mean by the previous trend?
The trend that was contained within the Price Channel pattern. So plot the Fibonacci retracement indicator between the high and the low of the price channel.
The second potential take profit zone is the Price channel starting point.
Step #6: Place the protective stop loss above the swing high prior to the Price Channel breakout
We’re adopting a very conservative approach when it comes to the stop loss technique. Simply hide the stop loss above the swing high prior to the Price Channel breakout.
We also recommend you to trail your stop loss above the last swing high once you cash in on the first portion of the trade.
