How to define an downtrend? How to identify and trade using downtrend?
How to define the trend? How to identify whether we are in a downtrend?
In previous lessons we have seen different types of trends and “How to identify whether we are in an uptrend (or) whether uptrend has officially started”.
In total, we have 4 stages:
1. An uptrend
2. A downtrend
3. A broken uptrend to the downside a.k.a Bullish consolidation
4. A broken downtrend to the upside a.k.a Bearish consolidation
In this video, we are going to see the rules to define and identify a downtrend.
DOWNTREND
What we look for in an downtrend is that, identified supply zones above the current price are respected (are held) and in the process of the price moving down has taken out demand zones (broken through even if it was just by one tick).
In Simple terms, supply areas are respected, demand areas are taken out
We define an downtrend as follows:
Possibility 1
· We were able to draw an downtrend (or) bearish trend line, which is respected AND at least one opposing zone of demand is taken out
· Every time there is a demand zone removed and two new peaks are formed, the downtrend is established and downtrend has officially began.
Possibility 2
· At least two opposing demand areas taken out, no possibility to draw a bearish TL
· Like we discussed in the last session, The reason for the second possibility is that it sometimes is not possible to draw a trend line based on the rules.
· Also, as before please do not forget the level on top of level situation
So to summarize, we can consider that downtrend has officially began, if:
1. 1 demand Zone is taken out & We are able to draw an bearish trendline (or)
2. If price takes out 2 demand zones.
Hope you are clear on “How to confirm whether we are in an downtrend” now. We can see other 2 scenarios in next sessions.
For more details and examples, checkout the video: