To determine the legitimacy of a down-channel pattern, analyze both confirmation and any invalidation factors. Confirm the down-channel by checking that price peaks and troughs are forming within two parallel, downward-sloping trend lines. The pattern is valid if multiple touchpoints confirm the resistance and support lines. Additionally, ensure that volume trends lower as the pattern progresses, confirming weakening momentum.
Regarding the potential false breakout, identify whether the price has convincingly breached the channel with significant volume, which typically validates a breakout. A false breakout often lacks following momentum or sees an immediate return within the channel boundaries. Consider broader market conditions; if contradicting the breakout direction, this may signal a false breakout. Use technical indicators like RSI or MACD for further confirmation—extreme readings may precede reversals, indicating falsity. Integrating these analyses will help assess the validity of both the pattern and the potential false breakout.
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