Descending Trend Line

A descending trend line is a chart pattern characterized by two or more lower highs that can be connected with a straight line that slopes downward. This bearish pattern is formed by linking two or more highs, with each subsequent high being lower than the previous one, resulting in a downward sloping trend line.

Also referred to as a “downtrend line,” this pattern is significant in technical analysis, which operates on the premise that prices tend to trend. The use of trend lines is crucial for both identifying and confirming these trends.

A descending trend line serves as a resistance level, indicating that supply (more sellers than buyers) is increasing even as prices decline. The combination of falling prices and rising supply is very bearish, reflecting strong selling pressure. As long as the price remains below this line, the trend is considered bearish.

Prices may pull back as the trend line acts as resistance. Typically, prices will retest a sloped trend line multiple times until it eventually breaks, which may signal a trend reversal. The strength of a trend line increases with the number of points that can be connected, and it is also influenced by how many market participants recognize the trend line. If many traders acknowledge the same trend line, it can become self-fulfilling.

As long as prices stay below the trend line, the downtrend is viewed as solid and intact. Conversely, a break above the descending trend line suggests that buyer demand has risen, indicating a potential change in trend. If the price breaks through the descending trend line, it may be an opportunity to go long on the breakout, but caution is advised due to the possibility of false breakouts.