Web Trader MT5
A downward trendline is a straight line that connects a series of lower price highs on a price chart that is trending downward. It is a basic technical analysis tool but also one of the most useful. The line shows resistance and the price has not been able to close above that line, which means that sellers are winning the battle and that the price is making lower highs over time.
To draw it, there must be at least two swing-highs, preferably 3-5 contact points. The steeper the slope, the more aggressive the downtrend. The longer the price stays in the range without being broken, the more real significance it has, and the more focus traders will turn to it when the price finally crosses back over.
A clean break above a well-established descending trend line is often seen as a significant shift in the trend and a possible change in power dynamics from sellers to buyers.
Example: A stock has been in a downtrend for six months. Each time it bounces back, it drops to a lower high. A trader draws a trend line from those highs downwards.
Once the stock breaks above that line on solid volume, the trader takes it as a sign of an early end to the downtrend and keeps an eye out for a long entry.
