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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 1.1 Short-Term Downtrend

Short-Term Downtrend (NYSE: BAC)

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 Intermediate-Term Downtrend and Short-Term Sideways Trend

Intermediate-Term Downtrend NYSE: BAC

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 Long-Term Downtrend, Intermediate-Term, and Short-Term Trends

Long-Term Downtrend (NYSE: BAC)

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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