Downtrends are timeframe specific so look for these signals on the timeframe you are trading whether it is intraday, daily, weekly, or monthly.

Here are the ten signals that show a chart is in a downtrend. 

  1. Most downtrends start with a gap down in price, some gaps fill before going lower but it usually is a signal of the start of a downtrend. 
  2. The chart is making lower highs and lower lows in your timeframe. 
  3. Price on the chart is rallying back to key price levels but finding resistance and reversing. 
  4. A moving average is acting as overhead resistance over and over. 
  5. The moving averages are descending on the chart. 
  6. When upper trend lines are connected at the highest prices they are visually declining. 
  7. Most downtrends see increasing volatility as measured by the Average True Range (ATR).
  8. Price action on the the candles on the chart are closing lower than they are opening.
  9. Even on most days when price closes higher than the previous day it is still closing lower than the open. 
  10. Most times you will see expanding volume as a downtrend begins and until it ends.
Downtrend
Chart courtesy of TrendSpider.com

By Steve Burns

After a lifelong fascination with financial markets, Steve began investing in 1993 and trading his accounts in 1995. It was love at first trade. After more than 30 successful years in the markets, Steve now dedicates his time to helping traders improve their psychology and profitability. New Trader U offers an extensive blog resource with more than 4,000 original articles, online courses, and best-selling books covering various topics.