Downward trend (downward trend on the chart of a currency pair)

There are many external and internal reasons why the exchange rate of a certain currency depreciates, and if this currency is the first in the Forex currency quote, then this phenomenon causes a downward trend.

Downward trend – characterizes the area of ​​the market in which the base currency in the currency pair is depreciating.

If you look at the chart of a currency pair during the formation of a downward trend, the rate curve will be directed predominantly in a downward direction.

Moreover, this concept is applicable only in relation to a certain time period, since the same price movement trend may not always be observed on different time frames.

A downward Forex trend on a chart is when each subsequent price minimum and price maximum is lower than the previous one. But this is only a theoretical definition, since in practice this rule is not always observed.

How to determine a downtrend on a chart?

Quite simply, just open the chart of the selected trading instrument and draw a line connecting two minimums or two maximums, and if the resulting line is directed downward, then this indicates the presence of a downward trend on this chart.

Sometimes, it is even visually clear where the trend movement is directed and there is no need to make additional constructions.

If desired, you can also use a trend indicator , in addition to the fact that it will show you the direction of price movement, and thanks to it you can find out a lot of other useful information.

Which can be used in practical trading on the currency exchange. There are two reasons for the appearance of such a trend in a currency pair - a weakening of the position of the base currency or a strengthening of the position of the quoted currency in the currency pair. The action of these factors has the same consequences. In order to be confident in the existing trend, try to determine the reasons for its occurrence.

Trading during a downward trend

One of the most common options for trading during a downward trend on the chart is a strategy using news; a decrease in the price of the base currency in a currency pair is caused by negative news for this asset.

For example, news about the economic crisis in Europe will definitely cause a downward trend in the eur/usd currency pair, so when such news appears, sell trades are immediately opened. In the same case, if a downward trend in price has been observed for a long time, the best places to open transactions are the moments when the price makes a rollback against the main trend.

That is, the entry point will be the end of the price rollback, and you can use both instant orders and pending sell limit orders :

Also, if there is a downward trend on the chart, you can try your luck by betting on its reversal in the opposite direction; in this case, a buy limit order not much higher than the previous price maximum.