Stock Trading Strategies During Downtrend Phase

It is a downtrend phase if the pressure of the sellers overcomes demand and the stock enters a period of lower lows and lower highs. Often, this is accompanied by light volume, although heavy volume will be evident when there is panic selling.

I suspect that the downtrend may have ended when price rises above the previous pivot point high after failing to make a lower low.

Common chart patterns associated with downtrend are:

• Downslopping trend lines
• Right-angled and descending broadening formations
• Descending and symmetrical triangles
• Rising wedges
• Exhaustion gaps
• Descending broadening wedges
• Pennants.

The safest strategy is to stay out of trades of companies in a downtrend. If you are aggressive one, you may take short-term trades on rallies off pivot points but these are high-risk, low-probability trades, best avoided by most.

If there is sufficient liquidity, you can put options or warrants in the same manner as you would trade shares in an uptrend. These can make you money because as a share falls in value, they increase in price.

If you are one of the inexperience traders, it may be wiser to leave your trading capital in the bank whilst the market is in a downtrend.

However, if you keen on long term investing, you can buy the stock when the price has been stabilized a bit. In fact, it is one of my way to enter the market. As long as you make your research very well (fundamentally intact), you will not make mistake. It is just like buying an undervalued stock.

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