Downtrend

AAA

DEFINITION of 'Downtrend'

Describes the price movement of a financial asset when the overall direction is downward. A formal downtrend occurs when each successive peak and trough is lower than the ones found earlier in the trend.

Downtrend



Notice how each successive peak and trough is lower than the previous one. For example, the low at Point 3 is lower than the low at Point 1. The downtrend will be deemed broken once the price closes above the high at Point 4.

Downtrend is the opposite of uptrend

INVESTOPEDIA EXPLAINS 'Downtrend'

Many traders seek to avoid downtrends because they can drastically affect the value of any investment. A downtrend can last for minutes, days, weeks, months or even years so identifying a downtrend early is very important. Once a downtrend has been established (series of lower peaks) a trader should be very cautious about entering into any new long positions.

RELATED TERMS
  1. Average Directional Index - ADX

    An indicator used in technical analysis as an objective value ...
  2. Trend

    The general direction of a market or of the price of an asset. ...
  3. Trendline

    A line that is drawn over pivot highs or under pivot lows to ...
  4. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  5. Trend Analysis

    An aspect of technical analysis that tries to predict the future ...
  6. Bear Market

    A market condition in which the prices of securities are falling, ...
RELATED FAQS
  1. How effective is creating trade entries after spotting a wedge-shaped pattern?

    Wedge formations are highly effective when trying to identify an entry in a trade or trying to establish sentiment in a stock ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    Speed Resistance Lines

    Learn how to measure the uptrend and downtrend lines on a finance chart.
  2. Active Trading Fundamentals

    Identifying Market Trends

    The success or failure of your long- and short-term investing depends on recognizing the direction of the market.
  3. Active Trading Fundamentals

    The Utility Of Trendlines

    Trendlines give an investor a good idea of the direction an investment might move in. Discover how to make them work for your portfolio.
  4. Forex Education

    Finding Market Movement With The ADX

    Take a closer look at this indicator, which refines your insight into the strength of a prevailing trend.
  5. Trading Strategies

    The Multiple Lives Of A Stock Trader

    Any trading career will have its ups and downs. Find out how to maximize the good times.
  6. Active Trading Fundamentals

    Find A Trend With The Partial Retrace

    Learn how to spot the pivot point from which a new movement will emerge.
  7. Trading Strategies

    How to Do the Fundamental And Technical Combo Trade

    Fundamental and technical analyses should be viewed as complementary rather than competing practices. When combined, these two methods can greatly strengthen your game.
  8. Stock Analysis

    A Trader's Look at the S&P 500

    Moving averages are sending an important signal, and it's probably not what you think.
  9. Chart Advisor

    Is Now the Time to Invest in North America?

    Bullish chart patterns across the North American markets suggest that now might actually be a wise time to allocate closer to home.
  10. Chart Advisor

    These Oil Service Stocks Are Ready For A Move Higher

    In the oil services sector, active traders have been trying hard to establish a floor and the double bottom pattern that is appearing on the chart suggests that a short-term reversal could be ...

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center