The buying point of the weekly line breaking through the upper track of the descending channel and the daily line retracing to the trend line

A weekly close above a descending channel’s upper trend line signals strong bullish momentum, especially with high volume and daily retest confirmation.

Jul 28, 2025 at 10:08 am

Understanding the Descending Channel in Cryptocurrency Trading

A descending channel is a technical analysis pattern commonly observed in cryptocurrency price charts. It consists of two parallel trend lines: the upper trend line connects a series of lower highs, while the lower trend line connects a series of lower lows. This formation indicates a sustained bearish trend where price action is confined between these two boundaries. Traders monitor this structure to identify potential reversal or breakout opportunities. When the weekly candle closes above the upper boundary, it suggests a significant shift in momentum. This breakout is considered more reliable due to the longer time frame, as weekly data filters out short-term noise and reflects stronger market sentiment. The validity of the breakout increases if accompanied by higher-than-average trading volume, which confirms participation from institutional or large retail players.

Identifying the Weekly Breakout Signal

To detect a valid breakout on the weekly chart, traders must observe several key conditions.

• Confirm that the price has closed above the upper trend line of the descending channel, not just touched or spiked above it intraday.
• Ensure that the candlestick body is clearly outside the channel, indicating sustained buying pressure throughout the week.
• Check for volume expansion during the breakout week; a surge in volume strengthens the signal.
• Use additional indicators such as MACD crossing above the zero line or RSI moving above 60 to validate bullish momentum.

It's critical to avoid acting on false breakouts, which occur when price briefly exits the channel but quickly re-enters. Waiting for the weekly candle to fully close prevents premature entries. Once confirmed, this breakout suggests that the prior downtrend may be exhausted, and a new bullish phase could be beginning. The weekly time frame provides higher confidence because each data point represents seven days of market activity, reducing the impact of emotional or news-driven spikes.

Daily Chart Confirmation: Retracement to the Trend Line

After a weekly breakout, price often pulls back to retest the former resistance, now acting as support. This retracement on the daily chart offers a second, lower-risk entry point. The ideal scenario occurs when price returns to touch or slightly dip into the upper boundary of the previously descending channel, now transformed into a support zone. This retest validates the breakout and increases the probability of continuation. Traders should look for signs of demand at this level, such as bullish candlestick patterns like hammer, bullish engulfing, or morning star formations. Additionally, observing order book depth on exchanges can reveal clusters of buy orders at this level, further confirming institutional interest.

Executing the Trade: Entry, Stop-Loss, and Position Management

Once both the weekly breakout and daily retest are confirmed, executing the trade requires precision.

• Entry: Place a buy order near the retest zone on the daily chart, ideally after a bullish reversal candle closes. For aggressive traders, a market order can be used once confirmation appears. Conservative traders may use a limit order slightly above the retest low to ensure execution only if momentum resumes upward.
• Stop-Loss: Set the stop-loss just below the retest low or below the former upper trend line, allowing room for minor volatility. A tight stop prevents large losses if the retest fails.
• Position Sizing: Allocate capital based on risk tolerance, ensuring that the potential loss per trade does not exceed 1% to 2% of total portfolio value.
• Take-Profit Levels: Identify prior resistance zones, Fibonacci extensions (such as 1.618 or 2.618), or measured moves equal to the height of the original descending channel.

Using trailing stops can help lock in profits as price advances, especially in volatile crypto markets where trends can accelerate quickly.

Tools and Indicators to Enhance Signal Accuracy

To increase the reliability of this setup, traders should integrate multiple technical tools.

• Volume Profile: Helps identify high-volume nodes near the breakout and retest levels, showing where significant transactions occurred.
• Ichimoku Cloud: A breakout above the cloud on the weekly chart, followed by the price holding above it on the daily, adds confluence.
• Fibonacci Retracement: Apply it from the highest peak to the lowest trough of the descending channel. A retest near the 61.8% or 78.6% level on the daily chart often aligns with the old trend line.
• Order Flow Analysis: On platforms like TradingView or through exchange APIs, monitor cumulative delta to see whether buyers or sellers are more aggressive during the retest.

These tools do not guarantee success but improve the probability of a winning trade when aligned with the core breakout-retest structure.

Backtesting and Historical Examples in Crypto Markets

Historical data from major cryptocurrencies demonstrates this pattern’s effectiveness. For instance, Bitcoin in late 2020 formed a descending channel from August to November. The weekly candle in November closed above the upper trend line, followed by a daily retest in early December. Those who entered at the retest saw price surge over 300% in the following months. Similarly, Ethereum in Q1 2023 exhibited a textbook example: a weekly breakout in February, a retest of the old resistance-turned-support in March, and a subsequent rally. Backtesting this strategy across assets like Solana, Binance Coin, and Cardano using platforms such as TradingView’s replay mode or Python-based backtesting frameworks (e.g., Backtrader) confirms its repeatability. Parameters such as minimum volume thresholds and candle close requirements must be strictly coded to avoid curve-fitting.

Frequently Asked Questions

What if the daily retest doesn’t reach the trend line exactly?

Minor deviations are normal due to market volatility. If price hovers within 1% to 2% of the trend line and shows bullish rejection (e.g., long wicks, strong close), the signal remains valid. Focus on price behavior rather than exact touchpoints.

Can this strategy be applied to altcoins with low liquidity?

It can, but with caution. Low-liquidity altcoins are prone to whipsaws and fakeouts. Ensure volume confirms the breakout and avoid assets with inconsistent trading activity. Prioritize coins listed on major exchanges with deep order books.

How long should I wait for the retest to occur?

There’s no fixed timeline, but most retests happen within 1 to 4 weekly candles after the breakout. If price continues to rise without pullback, the move may be strong, but the risk of entering late increases. Patience is key—missing a trade is better than entering without confirmation.

Is it necessary to use both weekly and daily time frames, or can I rely on one?

Using both time frames increases reliability. The weekly chart identifies structural shifts, while the daily chart provides tactical entry precision. Relying solely on one may lead to false signals or poorly timed entries.