The following stock chart of Fastenal (FAST) offers a great example of a descending channel.
Descending channels are a basic form of technical analysis spotted commonly in uptrends and are considered bullish as they can make for a strong entry point when the stock breaks out to the upside. Rarely do they break to the downside.
Note: this chart of Fastenal (FAST) is a eight month daily stock chart:
1. The blue “1?s show how Fastenal formed its descending channel over the course of four months. This is considered a large channel.
2. The blue “2" shows how Fastenal broke below the channel on high volume but then two days later on the volume 3x greater than the average reversed back to the upside. This was most likely a news related price swing, and the very next week FAST broke out of the channel above $40 a share.
3. The blue “3" shows how the descending channel ended up acting as support at just under $38 a share. Very critical as the stock reversed once again and quickly ran back up above $40.
4. The blue “4" shows where FAST then claimed higher highs above $44 and broke out of a small base. This signifies the continuation of the uptrend that was initiated back at point "2".
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