If the trend is moving down over a period of time, the trend is said to be declining, or a downtrend. A downtrend consists of each successive peak being lower than before, alongside each valley being lower than each previous valley. The lower highs confirm the downtrend indicated by lower lows. Note that downtrends require the majority of price bar’s closing values to be both lower than the close preceding it and below the open.
Downtrends, like uptrends, involve moving support and resistance levels. Since each peak and valley are sequentially falling, support levels revealed by any set of valleys and resistance levels shown in any set of peaks should also be falling. Trend lines should be slanting downwards and channel lines should be falling. If price breaks a resistance level, trend line, or channel while moving upwards, the downtrend may be ending.
In a downtrend, a valley above its last predecessor requires careful attention to the next high. A high above its predecessors requires careful attention to the next low. An individual higher peak or higher valley won’t automatically end a trend, but both of them together are a fairly strong sign that the downwards movement may be ending now or very soon.
As downtrends are the inverse of uptrends, a downtrend will end when supply from sellers is balanced by demand from buyers, this will instigate a sideways trend or consolidation. If supply is exceeded by demand price will begin to rise. A shift to an uptrend is typically, but not always, preceded by a reversal pattern.
Swing High Triggers
Swing Highs occur when price rises into an area, turns, then moves down. This forms peaks in an uptrend or downtrend. Peaks are entries in downtrends, providing good short opportunities. Peaks are exits in uptrends, providing a good place to sell before a downturn gets worse. In a consolidation area, short sales opportunities appear during swing highs.
In a downtrend, swing highs inside confluence zones trigger an entry to the short side (a short sale).
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