| downtrend A series of price declines in a security or the general market. Many analysts feel that investors should avoid securities in a downtrend until the pattern is broken. Compare uptrend. |
What Does Downtrend Mean?
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. A downtrend is the opposite of an uptrend.
Investopedia explains Downtrend
Many traders seek to avoid downtrends because they can affect the value of any investment drastically. A downtrend can last for minutes, days, weeks, months, or even years, and 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 new long positions.
Related Terms:
• Average Directional Index—ADX
• Bear Market
• Business Cycle
• Trend Analysis
• Uptrend
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