What Is Downtrend? How To Confirm And Trade In A Downtrend

0
180
What Is Downtrend? How To Verify And Trade In A Downtrend

Tiếng Việt

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?

Register an IQ Option account NowGet $10,000 Free for beginners

What is Downtrend?

A downtrend is the bullish 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.

What is Downtrend? Characteristics of a Downtrend
What is Downtrend?

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.

Identification characteristics of a downtrend
Identification characteristics of a downtrend

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.

Trendline in a downward trend
Trendline in a downward trend

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.

The price breaks out of the support and enters a downward trend
The price breaks out of the support and enters a downward trend

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.

The price falls out of the trough in a downward trend and retests
The price falls out of the trough in a downward trend and retests

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.

The ladder downward trend pattern
The ladder downward trend pattern

Register an IQ Option account NowGet $10,000 Free for beginners

Practical examples of downtrend patterns

Pattern 1: Draw a bearish trendline in a downtrend

Draw a bearish trendline in a downtrend
Draw a bearish trendline in a downtrend

Pattern 2: The price breaks out of the support and goes down

The price breaks out of the support and goes down
The price breaks out of the support and goes down

Pattern 3: Downward trend and retest

The price falls out of the trough in a downward trend and retests
The price falls out of the trough in a downward trend and retests

Pattern 4: The ladder downtrend pattern

The ladder downtrend pattern
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.

When is a downward trend over?
When is a downward trend over?

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.

The trend is my friend
The trend is my friend

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.

Reversal candlestick patterns from bullish to bearish
Reversal candlestick patterns from bullish to bearish

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.

The price breaks out of the support level and goes down
The price breaks out of the support level and goes down

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.

Retest in a downtrend
Retest in a downtrend

Register an IQ Option account NowGet $10,000 Free for beginners

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.

Trendline combined with Doji and Bearish Pin Bar candlesticks
Trendline combined with Doji and Bearish Pin Bar candlesticks

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.L.S trading strategy
The T.L.S trading strategy

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).

The T.S strategy
The T.S strategy

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.

Love!

Register an IQ Option account NowGet $10,000 Free for beginners

LEAVE A REPLY

Please enter your comment!
Please enter your name here