Downward trend (downward trend on the currency pair chart)

There are many reasons, both external and internal, why a certain currency's exchange rate declines, and if this currency is listed first in the Forex currency quote, this phenomenon causes a downward trend.

Downward trend – characterizes the market segment in which the base currency in a currency pair is depreciating.

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

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

A downward trend on a Forex chart is defined as each subsequent price low and high being lower than the previous one. However, this is only a theoretical definition, as in practice, this rule is rarely observed.

How to identify a downtrend on a chart?

It's quite simple: just open the chart of your chosen trading instrument and draw a line connecting two lows or two highs. If the resulting line points downward, this indicates a downtrend on the chart.

Sometimes, the direction of the trend is clearly visible, eliminating the need for additional plotting.

If desired, you can also use a trend indicator . Besides showing you the direction of price movement, it can also provide a wealth of other useful information, which can be used in practical trading on the forex market.

There are two reasons for such a trend to emerge in a currency pair: a weakening of the base currency or a strengthening of the quote currency in the currency pair. These factors have the same consequences. To be confident in the existence of a trend, try to determine its causes.

Trading in a Downward Trend

One of the most common trading options during a downtrend on the chart is a news strategy. A decline in the price of the base currency in a currency pair is triggered by negative news about that asset. For example, news about the economic crisis in Europe will inevitably trigger a downtrend in the EUR/USD currency pair, so when such news appears, sell trades are immediately opened.

Similarly, if the downward price trend has been ongoing for a long time, the best times to open trades are when the price pulls back against the underlying 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 it reversing in the opposite direction. In this case, a buy limit order slightly above the previous price maximum.