A downtrend consists of decreasing prices with observable lower price peaks and troughs. For prices to downtrend, bearish sentiment must overpower bullish sentiment. Therefore, supply is greater than demand.
A price trough is the lowest price level traded at before prices bullish retrace (move against the downtrend). A price peak is the highest price traded at during the bullish retracement; the highest price reached before the downtrend continues.
Figure I.1 shows a short-term downtrend identifiable when analyzing decreasing peaks and troughs.
Let’s expand the number of observable sessions to see how the short-term downtrend is a constituent of an intermediate-term trend.
Figure 1.2 shows an intermediate-term downtrend which can be discerned by examining progressively lower peaks and troughs. The short-term downtrend we analyzed in figure 1.1 exists within the intermediate-term downtrend; there are several short-term downtrends present within the intermediate-term downtrend. The intermediate-term downtrend stalled in June, and a short-term sideways trend was instituted.
Let’s see how the short-term trends and intermediate-term trend in the figure compose the long-term trend.
Figure 1.3 shows a long-term downtrend with progressively lower peaks and troughs over approximately one year. Notice the marked short-term uptrend. This short-term uptrend is considered a retracement of the long-term downtrend.
Bottom line: a downtrend can’t occur without progressively lower peaks and troughs.
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