Downtrend

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    DowntrendWhat is a downtrend in trading?

    When the price of an asset or a security decreases steadily over a period of time, it is said that the price is in a downtrend. The opposite of a downtrend is an uptrend. If the price is developing rather flatly, it is called a ranging market.

    Even if the market direction is clearly down, there will still be fluctuations in price. Thus, a general downtrend will also incorporate temporary increases in price.

    This means that when the price of an asset moves in a particular direction, it does not move in a straight line. There may be small peaks and troughs: highs and lows within the trend. A downtrend can, therefore, be identified by continuously lower highs and lower lows.

    The chart below is an example of price in a downtrend:

    Downtrend

    (1) Lower lows

    (2) Lower highs

    Further reading

    Many trading strategies are based on following trends. One example is our forex beginner strategy:

    To learn more about determining the market direction, continue here:

    Market conditions