What 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 an 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 an downtrend:


number_1 Lower lows
number_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:

How does a trader determine the direction of the market? Learn how to identify the market conditions to help you determine price movement.
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