What is a downward trendline?

Hello, CAPITOL CAT here! Today I’ll talk more about the descending trendline.

What is a descending trendline?

A descending trendline is a line drawn by connecting the highs on a chart when prices are falling. By drawing this line, you can more easily predict how quickly prices are dropping and approximately how far they might fall next.

How do you draw it?

1. Find the first high:
   • First, identify the highest point on the chart. This will be your first high.
2. Find the next high:
   • Next, find the point where the price rose again after a brief decline—the next high.
3. Connect the highs:
   • Draw a straight line connecting the first high and the next high. This is the descending trendline.
4. Add more highs:
   • If the price drops again and makes a new high, add that point as well and extend the trendline.

Points of a descending trendline

• At least 3 touchpoints: To confirm the trendline is reliable, it’s important that at least three highs touch the line.
• Slope angle: If the slope is too steep, durability may be low, so be careful. A moderate slope is ideal.
• Breakouts: Prices can break above the descending trendline (a breakout) sometimes. This can suggest a trend reversal, so it’s an important point.

Why is it important?

Using a descending trendline helps you understand the following:

• Selling timing: By confirming price movement along the trendline, you can spot selling opportunities.
• Trend durability: If the price touches the trendline and rebounds, you can confirm that the trend is still ongoing.
• Risk management: Using the trendline to set stop-loss points helps manage risk.

How about it? Have you gained a better understanding of descending trendlines? I’m cheering for everyone to study hard and trade skillfully!

Next time:

・About range markets

・Overview of the color line tool “GGJ LineTradeExpert”

・Drawing trendlines using the color line tool “GGJ LineTradeExpert”