Downtrends Explained

A downtrend, by definition, is a series of lower highs and lower lows. Downtrends can be accompanied by a downtrend line that acts as the most dominant resistance point forcing prices lower and lower.ű

Downtrends are also called bear markets when they take place for long term timeframes, such as years or months. Shorter term downtrends are called drawdowns, and extremely short, violent downtrends are called crashes.

Downtrends are only over in hindsight, after a low is put in and higher high and higher lows begin steadily and an uptrend confirms.

Like any trend, downtrends can pause, before continuing. Bear markets also experience rallies, and don’t simply trend in a downward direction indefinitely.

Downtrend Trading Strategies

When an asset is in a downtrend, the ideal strategy is to sell or short into resistance, then take profit or buy the asset back once a low enough price target has been achieved.

Stop loss orders can be placed above downtrend resistance. If the stop is hit, the downtrend may be over and the trader can reevaluate their position. 

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