Trend is a keyword that appears a lot in the technical analysis process. Market trends include Downtrend, Uptrend, and Sideway. These terms are mentioned a lot by investors throughout the investment journey. So how to recognize market trends. The following article Crypto Trading will give you specific information about Downtrend.
What is the concept of Crypto Downtrend and Uptrend?
The downtrend is a period of decreasing market trends that usually lasts for several months. On technical charts, the following peaks are often lower than the previous peaks. The following troughs are often lower than the previous troughs. During this period, investors have negative sentiment and sell many assets. Therefore, market liquidity during the Downtrend period often decreases with the hesitation of buyers.
An uptrend is an upward trend phase, usually lasting as the market price increases. To see this situation, we can observe the price chart. Recognize this situation when we see that the previous price will be higher than the next price. The next price peak is higher than the previous price peak, the next bottom is higher than the previous bottom. During this phase, investors have a positive mentality and often buy a lot. Therefore, the liquidity of the market during this phase is often very large.
Characteristics of Downtrend in Technical Analysis
To know the outstanding features of Downtrend when analyzing technical. Investors can rely on some specific features.
- Lower Highs: In a Downtrend, new highs are formed that are lower than previous highs. This is a sign that the price trend is going down.
- Lower Lows: Similar to price peaks, new price bottoms will also be lower than previous price bottoms. This further reinforces the downtrend.
- Decreasing trading volume: As prices fall, trading volume will usually decrease. This shows a lack of investor confidence in the market.
- Negative Market Sentiment: During a Downtrend, market sentiment often turns negative. Investors become anxious and panicky, leading to a sell-off of assets, causing prices to fall even further.
- Downtrends can last for a long time: Downtrends can last for months or even years. Therefore, investors need to be patient and disciplined when investing during this period.
How to recognize the appearance of a Down Trend
To recognize the appearance of a downturn, investors should rely on some of the following identification methods.
Identify Downtrend by Trendline
A trendline is a line that connects peaks or troughs. This line is drawn from past data to find out the future price trend.
Trendline is like a graph to represent 3 contents:
- Uptrend
- Downtrend
- Sideways trend or no price movement
The way to determine the trendline is quite simple and you just need to find at least 2 peaks, and 2 bottoms and connect them. For an uptrend, you just need to choose 2 bottoms and connect them. For a downtrend, choose at least 2 peaks in which the next peak is lower than the previous peak and then connect them.
Through trend lines, investors can determine many important factors. Including resistance levels, how long a Downtrend lasts, or when the market will reverse.
See also: What is Dump? Tips to help you “avoid” the dump trap
Use the MA line to identify the Down Trend
MA is an average line that shows price fluctuations over some time. This line usually takes some common milestones such as 10, or 20 days for short-term MA. It also takes 50 days for the medium-term, and 100 or 200 days for the long-term.
There are three common types of MA lines used in technical analysis. They are simple moving averages, weighted moving averages, exponential moving averages, and weighted moving averages. Generally, SMA lines are more commonly used due to their simplicity and accurate prediction.
When the Downtrend appears, the price chart crosses the SMA lines:
- If the downturn crosses below the SMA20 line, it usually signals a short-term downtrend.
- If the Downtrend crosses below the SMA50 line, it will signal a medium-term downtrend.
- If the price line crosses below the SMA100 line, it signals a medium-term downtrend.
- If the SMA20 line crosses below the SMA50, it determines a long-term downtrend.
- If the price line crosses below the SMA20 line and the SMA20 line crosses below the SMA50 line. At the same time, the price line, SMA20 line, and SMA50 line touch each other and point down, this is the downtrend part.
Identify a Down Trend based on the MACD line
If the MACD crosses the zero line and points down, it is a Downtrend. This is the orange slow-moving average on the chart. It is created from the MACD line and the EMA9 line, helping investors better understand previous movements. The movements of the MACD line and the signal line provide a lot of important information about the market.
If the Signal Line intersects the MACD line from top to bottom, the current trend is Downtrend. The way to identify it is the bar chart, which measures the movement between the MACD line and the Signal line. The Histogram chart will fluctuate around the Zero line.
The blue histogram usually indicates bullish momentum if the MACD line is above the Signal line and is above it.
The red histogram indicates bearish momentum if the MACD line is below the Signal line and is below.
Note for traders when trading in a Downtrend
To facilitate the investment transaction process when a downturn appears, investors need to pay attention to the following points.
Maintain a thorough technical analysis mindset
Stay Calm and Disciplined: Downtrends often make investors anxious and panic, leading to hasty and wrong decisions. Therefore, stay calm and disciplined with your investment strategy.
Avoid FOMO: When a downturn appears, investors are prone to FOMO. Fomo makes investors buy when prices are falling sharply, which carries high risks. Instead, be patient and wait for a buying opportunity when prices have stabilized.
Manage your emotions: Negative emotions can affect your investment decisions. So, manage your emotions well and avoid making decisions when you are angry or anxious.
Technical Market Analysis Strategy
Carefully analyze Downtrend price trends: Use technical analysis tools like Bull Market, and Bear Market to determine current price trends and predict future trends.
Identify support and resistance zones: Support and resistance zones can be Downtrend reversal points or reasonable entry and exit points.
Follow technical indicators: Some useful technical indicators used in Downtrend are MACD, RSI, and Stochastic…
Market News Updates: Negative news about the market or business can affect asset prices.
Develop a trading strategy during a Down Trend
Investors should trade according to the Uptrend by selling when the price increases and buying when the price decreases. Conversely, if trading when the Downtrend, buy when the price increases and sell when the price decreases. This transaction has many potential risks but can bring huge profits if successful. However, this strategy is usually only suitable for experienced investors. In addition to the trend trading strategy, investors should also trade Swing Trade (surfing). This is a short-term trading strategy to profit from price fluctuations in the downturn.
See more: Opening an Bybit exchange account for traders
Don’t rely too much on advice
Downtrends can last for months or even years. Therefore, be patient and disciplined with your investment strategy. Avoid hastily following unfounded advice to take profits or cut losses. This may cause you to miss opportunities or suffer unnecessary losses.
Conclude
In investing, recognizing Downtrend or Uptrend trends in the market can minimize the risk. At the same time, it is easy to increase the possibility of success very high. Hopefully, this article has helped investors know how to recognize Downtrend. In addition, I also hope that investors can apply it in their investment transactions. Follow Crypto Trading to update more new and useful information related to investment.
FAQS
Should you trade in a Downtrend?
Trading in a downturn is often risky but can also bring profitable opportunities.
Where can I learn more about Downtrend?
You can find more information on financial websites, investment forums, or online courses.
Is there any suitable strategy for the Downtrend?
Suitable strategies for Downtrend include Trading according to the downtrend, swing trading: Short-term buying and selling to profit from price fluctuations, trading against the trend…
