The Downtrend

A downtrend is defined by a series of successfully lower tops and lower bottoms, which create a consistent downward pattern. If this structural pattern holds, the downtrend remains intact.

The Downtrend Line (Resistance)

The downtrend line is the line that connects two or more consecutive tops. This line serves as a dynamic resistance level for the market.

  • A minimum of two tops are needed to define the line.
  • The more tops used to draw the line, the more confident traders become in the trend, as it strongly reinforces the downward direction.

Roles of Key Components

  • The downtrend line acts as resistance.
  • The bottoms within the pattern act as support levels.

Price Trajectory and Invalidation

The typical movement within a healthy downtrend is for the price to react to the resistance:

  1. Once the price reaches the downtrend line, it usually rebounds.
  2. This rebound registers an even lower low than the previous bottom.

The downtrend line will be breached (invalidated) when demand becomes greater than supply, causing the price to break successfully above the established line.


Detailed Summary

A downtrend is a consistent market pattern characterized by consecutively lower tops and lower bottoms. The trend remains valid as long as this structural pattern is maintained. Key components include the downtrend line, which connects the lower tops and acts as dynamic resistance, and the bottoms, which serve as support levels. The trend is considered healthy when the price rebounds off the resistance line, creating a new, even lower bottom. The downtrend is invalidated if demand overwhelms supply, causing the price to successfully break above the downtrend line.

Key Takeaways

  • A downtrend is structurally defined by a series of successfully lower tops and lower bottoms.
  • The trend remains intact if this structural pattern holds consistently.
  • The downtrend line is drawn by connecting two or more consecutive tops.
  • The downtrend line functions as a dynamic resistance level.
  • More tops used to define the line increase trader confidence in the downward direction.
  • The bottoms within the pattern serve as support levels.
  • In a healthy downtrend, the price rebounds off the downtrend line, registering a lower low than the previous bottom.
  • The downtrend is invalidated when the price breaks successfully above the established downtrend line, indicating demand has exceeded supply.