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.


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


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.

  1. Trend

    The general direction of a market or of the price of an asset. ...
  2. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  3. Trendline

    A line that is drawn over pivot highs or under pivot lows to ...
  4. Bear Market

    A market condition in which the prices of securities are falling, ...
  5. Three Black Crows

    A bearish candlestick pattern that is used to predict the reversal ...
  6. Trend Analysis

    An aspect of technical analysis that tries to predict the future ...
Related Articles
  1. Active Trading Fundamentals

    What If You'd Invested Right After Netflix's IPO?

    Find out more about how much you would have made if you invested in Netflix Incorporated right after its initial public offering, or IPO.
  2. Active Trading Fundamentals

    Speed Resistance Lines

    Learn how to measure the uptrend and downtrend lines on a finance chart.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Active Trading Fundamentals

    Find A Trend With The Partial Retrace

    Learn how to spot the pivot point from which a new movement will emerge.
  8. Chart Advisor

    Pay Attention To These Stock Patterns Playing Out

    The stocks are all moving different types of patterns. A breakout could signal a major price move in the trending direction, or it could reverse the trend.
  9. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  10. Investing

    10 Cheap Vacations for the Ultimate Foodie

    If you are a foodie then explore one of these destinations in 2016.
  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 >>
  2. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  3. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  4. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  5. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  6. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center