The trend is a favorite dish of professional traders. As long as the market has a clear trend, they will probably make money. In the previous article, I mentioned everything about an uptrend. And now, I’ll introduce you to the downtrend (downward trend). What is this? How to confirm? And how to open secure orders.
If you are not familiar with an uptrend, please read this article carefully. What is uptrend? 3 safest strategies to open an order in an uptrend?
What is Downtrend?
A downtrend is the bearish trend of the market. The price keeps falling for a long time. It creates lower troughs after troughs and lower peaks after peaks.
In technical analysis, a downward trend is also known as the Bear market.
Identification characteristics of a downtrend
The following trough is lower than the previous trough. Trough (B) is lower than trough (A) and trough (C) is lower than trough (B). Just like that, the following troughs will be lower than the previous ones.
The following peak is lower than the previous peak. Peak (2) lower than peak (1) and peak (3) is lower than peak (2). The market continuously creates lower peaks after peaks.
When both signals appear, you can be sure the market has entered a downward trend.
Popular Downtrend patterns
Pattern 1: A downward trend in which you can draw a trendline
This can be considered the most classic downward trend pattern. It is the most perfect one in technical analysis.
What is a trendline? The answer is trendline is a trend line. In a downtrend, the bearish trendline will connect the peaks together. It acts as a resistance level for the market in a downward trend. And when the price touches the trendline, it will fall back.
In a downward trend, you just need to draw a straight line downwards connecting the 3 peaks together. So, you have a bearish trendline.
Pattern 2: The price breaks out of the support, drops, and enters a downward trend
This is a recognizable downtrend pattern which is very popular in the market. (i) The price breaks out of the support and goes down. (ii) After that, it retests the support level just broken.
Pattern 3: Downtrend and Retest
This is also one of the very common patterns when the market forms a downward trend. The price will keep falling, creating lower troughs after troughs. And each time the price falls out of a trough, it will retest the trough just crossed. It will then continue to fall. The downtrend process repeats itself many times. Decrease> retest> and continue to decrease.
Pattern 4: The ladder downward trend pattern
The price goes down, then sideways, and then goes down again. In general, you will realize that this is a downtrend. But you will not know how and when to open an order safely.
Practical examples of downtrend patterns
Pattern 1: Draw a bearish trendline in a downtrend
Pattern 2: The price breaks out of the support and goes down
Pattern 3: Downward trend and retest
Pattern 4: The ladder downtrend pattern
When is a downward trend over?
Answers: It is when the principles of a downtrend are broken. The previous peak and trough are no longer lower than the previous ones => The downtrend has ended.
When a downtrend ends, the market will likely fall into two cases. It will either move sideways or return to an uptrend.
Principles for opening orders in a downtrend
The trend is our friend. Please repeat this quote repeatedly when you open the candlestick chart and start trading. The trend is a “close friend”. Just follow it and trade. And in a downtrend, you should only open DOWN orders.
All you need to do to make money in this market is to wait for the trend and follow the discipline. Uptrend = UP orders, Downtrend = DOWN orders.
Three entry signals in a downtrend
The trading formula in a downtrend is you must only open DOWN orders.
There are 3 extremely important signals to watch out for: (i) Bearish reversal candlestick patterns, (ii) Break out of support to form a downtrend, (iii) Retest the levels in a downward trend. I will explain each signal so you can better understand it
Signal 1: Reversal candlestick patterns from bullish to bearish
The price will keep falling in a downtrend. Combined with bearish candlesticks, your trades will be a lot safer.
I will list out 3 bearish reversal candlesticks with the highest accuracy. They are Bearish Pin Bar (Shooting Star), Bearish Engulfing, and Evening Star. This is a standard signal for you to open a DOWN order in a downward trend. I will guide you in detail below.
Signal 2: The price breaks of the support and goes down forming a downtrend
In most cases, the price will create a long candlestick to definitively break out of the support and go down => forming a downtrend. This is also a signal for you to focus and open a DOWN order.
Signal 3: Retest in a downtrend
When the market enters a downtrend, The price will keep falling, creating lower troughs after troughs. And each time the price falls out of a trough, it will probably retest the trough just crossed. I often call them as levels in a downward trend.
Three trading strategies in a downtrend
You must really grasp the 3 signals above. That is the point of whether you should open an order. And now, I’ll go into detail.
Trendline combined with Doji and Bearish Pin Bar candlesticks
The trendline in a downtrend acts as a resistance zone of the market. As long as prices create candlestick patterns such as Doji candlestick or bearish reversal candlesticks such as Bearish Pin Bar, this is a reliable signal for the price to fall back.
So, open a DOWN order when: The Doji or Bearish Pin Bar candlesticks appear on the bearish trendline.
The T.L.S trading strategy
This is a trading strategy combining trends, levels, and candlestick pattern signals.
When the price retests the levels in a downtrend with bearish reversal candlestick patterns => Open a DOWN order.
The T.S strategy
Perhaps this will be the most used tactic in a downtrend. It is the combination of trend and signal.
Open a DOWN order when: The price is in a downwardtrend, creating reliable bearish reversal candlestick patterns (Bearish Pin Bar, Bearish Engulfing, and Evening Star).
In one word
Don’t try to stop a downwards rushing train, it will crush you into pieces. So does a downtrend. When the market goes down, either you follow that trend and open DOWN orders, or you don’t do anything. Going against the trend is “throwing money through the window”.
What you need to do in a downtrend is wait for the signal and open DOWN orders.
Sign up for a Demo account below. Open a Japanese candlestick chart and verify what you have learned today.
I will have many articles to practice this knowledge. Because this is the safest binary options trading strategy up to now.