Last time we thoroughly studied the concept of an uptrend. In this lesson, we will discuss the opposite trend. You will learn what a downward trend is and how to trade in a bear market. A downtrend is also called a bearish trend. It is easy to guess that in a bear market, the price is moving down. Hence, this trend is the opposite of a bullish one.
However, it is important not to mix up a correction and a downtrend. A retracement is a short-term uptrend. During this period, the asset price decreases, giving excellent entry points into long positions.
A bearish trend is a situation when the price of a certain asset is constantly declining for a longer period.
When a correction unfolds traders remain optimistic. A bearish trend is characterized by heavy investor pessimism. They are convinced that the price will continue to decline in the future. This is why they are inclined to sell assets.
Traders who open short positions are called bears. In contrast to bulls, these speculators expect the price to edge lower, i.e. they make a profit when the price falls.
If the number of sellers exceeds the number of buyers, it is a clear indication of a bear market. Its main feature is high supply and low demand.
Fading optimism
Optimism about the further growth of an asset cannot last forever. Sooner or later, bulls start selling their once cheap assets at a higher price, closing Take Profit orders. It is called to lock in profits. This is how a downtrend usually begins.
Price decline
As the number of sellers is increasing in the market, bears start taking the upper hand. An asset is declining due to strong bearish pressure. However, the price may also slide down because of negative fundamental factors.
Speculators enter market
In this phase, sellers start entering the market, boosting trading volumes. However, they open positions mainly for a short period, so the asset price rises for a short time. The overall sentiment remains bearish.
Slowdown of price decline
If the quotes have been falling for a long time, an asset gets oversold. When an asset is traded at a price below its market value, buyers begin to gradually enter the market. This leads to a slowdown in price decline.
Sluggish downward movement
When the price of an asset reaches an extremely low level, its further sales become unprofitable. Hence, the number of short positions starts dropping. Investors are more willing to open long positions, ignoring any negative factors and focusing only on the positive ones. As a result, the price slides into a sideways channel. After that, a bullish trend is highly likely to gain momentum.
However, it is important not to mix up a correction and a downtrend. A retracement is a short-term uptrend. During this period, the asset price decreases, giving excellent entry points into long positions.
A bearish trend is a situation when the price of a certain asset is constantly declining for a longer period.
When a correction unfolds traders remain optimistic. A bearish trend is characterized by heavy investor pessimism. They are convinced that the price will continue to decline in the future. This is why they are inclined to sell assets.
Traders who open short positions are called bears. In contrast to bulls, these speculators expect the price to edge lower, i.e. they make a profit when the price falls.
If the number of sellers exceeds the number of buyers, it is a clear indication of a bear market. Its main feature is high supply and low demand.
Fading optimism
Optimism about the further growth of an asset cannot last forever. Sooner or later, bulls start selling their once cheap assets at a higher price, closing Take Profit orders. It is called to lock in profits. This is how a downtrend usually begins.
Price decline
As the number of sellers is increasing in the market, bears start taking the upper hand. An asset is declining due to strong bearish pressure. However, the price may also slide down because of negative fundamental factors.
Speculators enter market
In this phase, sellers start entering the market, boosting trading volumes. However, they open positions mainly for a short period, so the asset price rises for a short time. The overall sentiment remains bearish.
Slowdown of price decline
If the quotes have been falling for a long time, an asset gets oversold. When an asset is traded at a price below its market value, buyers begin to gradually enter the market. This leads to a slowdown in price decline.
Sluggish downward movement
When the price of an asset reaches an extremely low level, its further sales become unprofitable. Hence, the number of short positions starts dropping. Investors are more willing to open long positions, ignoring any negative factors and focusing only on the positive ones. As a result, the price slides into a sideways channel. After that, a bullish trend is highly likely to gain momentum.
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