Downtrend
on stock market charts
Tips for bearish stock market strategies
You as a stock trader will want to identify stock in downtrend to find possible candidates
for short trades.
You must be able to identify downtrend because such type of stock market trend can be found on a lot of stock market charts. And it also means that stocks and stock markets are moving not only up but also down. There is absolutely critical to understand how to analyze stock market charts because it helps you plan your trades and use appropriate stock trading strategy. You do not want to buy stock which are in decline. Stock trading strategy to buy pullback is NOT good choice for declining stocks .
How to identify downtrend
on stock market charts
I look for these indications on a stock chart during stock trend analysis to identify this type of trend: - Price is declining
- Corrections (pullbacks) are not as strong as moves down
- There are lower highs (LH) and lower lows (LL) on the chart
- Volume during declining periods is higher than during corrections
Note them all on this example of a stock chart:
You can use
moving averages
to obtain additional hints for to reading a stock chart easier. - Important 50EMA works as declining
resistance
which stops any rising correction
- Both averages are in correct order; shorter 20EMA is under a longer 50EMA.
What is good stock trading strategy
for such situation ?
There are several options how to trade in situation of declining prices. First you have to identify what is
prevailing stock market trend
. Are we in bull market environment or in bear market?If we are in bull market and you look at stock price chart with declining price of shares, then it is possible to decide that such stock is relative weak to general market. It is good to avoid such stock for long entry (buy). Much more profitable could be to sell short such stock. But when stock market charts are bullish then short sell setup for this stock should be conservative. It is good to plan only
half size position
and be conservative in
specifying target.
If we are in sideways or bear market then it is critical to do not try to enter LONG trade in such stock. It is much more wise to prepare aggressive short sell trade setup in such stock as it offers best profit opportunity.
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