Downtrend Stock - Downtrend Lines
A
downtrend occurs when a stock or index makes consecutive lower lows and lower
highs, resulting in a price decline which trends lower. Each
relative low is below the preceding low, and each relative high is below the
preceding high. Downtrend lines gain more validity each time price touches
but does not penetrate the
trend line. A downtrend remains a trend until
this series of lower highs and lower lows is broken. An upside penetration
of a descending trend line is a buy signal, and usually is the first indication
that a downtrend may soon end. A downtrend is deemed to be complete with
the formation of a higher low or higher high. This provides a trading
opportunity to go long once a downtrend is broken.
Example of a
stock downtrend:
The chart above shows a stock in a downtrend. The trend line connects
lower highs and matches the slope of the
downtrend. Trend trading offers tremendous profit potential when a trend is
identified correctly.
Example of an downtrend line:
A downtrend line or descending trend line connects
lower highs during a
downtrend, but the upside penetration of the downtrend line is a technical
buy signal. The break of the downtrend line signals an end of the trend,
and offers a trading opportunity to buy.
Be sure to learn more about
trend lines
as well as
uptrends.
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