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What is a Downtrend? (Simplified)

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Comparing to an uptrend, the downtrend is the opposite.

While the market is gaining strength in an uptrend, in a downtrend we have clear signs of the market weakness.

How to recognize a downtrend?

Best way to tell you more about a downtrend is to show you an example.

Here is an example of a clear downtrend that will be obvious to everyone:

Starting from the highest point that was established on Monday, the price went down step by step.

The first move down resulted in creating low on Tuesday.

After establishing first low, it has made a pullback that created high on Wednesday.

Once the high was formed, next move down happened and created new low on Thursday that was followed by one more pullback and high that was made on Friday.

After creating second high, new decline hit the market resulting in reaching a new low.

What are the characteristics of a downtrend?

It is clear that the first characteristic of a downtrend is similar to the first one of an uptrend:

Downtrend is not a straight line down.

We can see that it drops in some kind of waves.

The most important characteristic is that the price is forming lower highs and lower lows.

The low made on Thursday is lower than the low from Tuesday.

On the other side, the high established on Friday was the lower than the high formed on Wednesday.

This characteristic is very useful for identifying a downtrend in the market and a lot of traders use it.