Crypto Academy

Ascending Channels

Ascending Channels

6 min reading

Discover more about trend lines on the crypto chart.

descending channel

Ascending Channels

What is ascending channel?

It can be defined as the price action that exists between ascending parallel lines. When support and resistance lines are studied and understood, they serve as indicators to project the state of affairs in the cryptocurrency market, ascending channels are a plus in technical analysis. They show an upward trend in the price of a security. They are diagonal lines drawn on graphs that help assist chartists in visualizing price movements and identifying trend lines. And as we mentioned earlier, they are used in technical analysis to confirm trends, identify breaks and reversals on a graph. An ascending channel does not contain prices within a particular trend line but shows the various support and resistance areas that traders can use to set up stop-loss orders and profit targets. If a breakout occurs above an ascending channel, it may mean a continuation of the uptrend. But a break below the ascending channel could result in a trend change. 

The ascending channel is controlled by two trend lines that connect consecutive higher highs and beneath a secondary ascending trendline that connects consecutive higher lows. Prices follow this line until there is a significant change in prices and the line reaches the lower trend which acts as a support. A breakout above the upper trend indicates a strong buy signal and when a price breaks through a trend line, this may indicate a change in trend.

Trading on an ascending channel is quite simple. Traders may choose to go a long way until the price reaches the bottom trend line of the ascending channel and leave the market when the price reaches the top trend line. To prevent losses, a stop-loss command must be positioned just below the lower trend line. Traders can also buy a stock when the price crosses the upper line of an ascending channel. Sometimes traders would like to take a low position when the price moves under the lower channel line of an ascending channel. Before doing this, it will be recommended to look for additional signs that show weakness in the pattern.

Descending channels

This is the reverse of an ascending channel. It is done by connecting the lower highs and lows on the chart. As mentioned earlier, channels are generally used by technical traders to identify and follow trends in stocks over time, so that they don’t get caught up in the trading. They can also be used to find the optimal support and resistance levels to buy or sell. Downtrend channel lines may be extended to provide a projected trajectory for the stock should its trend continue.

How to use it on bit4you

To understand how ascending channels work, you should practice first with Demo mode. On the graphs below that are provided by the bit4you crypto trading platform, you can see how ascending and descending channels look like. The trading chart is also controlled by two parallel trend lines. It consists of a primary descending trend line that connects consecutive lower highs and beneath the chart is a secondary descending trend line that also connects consecutive lower lows. Prices then follow that path where there is the least resistance until it reaches the lower trend line then bounces until it reaches the upper trend line which acts as a resistance. 

When there is a breakout on a downtrend channel, the price of a stock can move quickly in the direction of the breakout. If the movement is in the direction of the trend, then there could be a continuation. But if it is the other way around, then the downtrend channel would be the beginning of a reversal.   A trader can make sell bets in a descending channel when the price of the stock crosses the resistance line. Remember that a resistance line is a level that the price of an asset fails to breakthrough due to strong selling pressure. However, long-term buying trades can be initiated when the stock begins to reach a support trend line, a level that holds the price of an asset, preventing it from falling. 

In conclusion, both ascending and descending channels are used by technical analysts and can be useful in tracking a stock’s price immediately after a reversal. However, it is always advisable to get counsel from experts in the crypto market in order not to be at a complete loss due to the high volatility of the market.