What is a Downtrend?
There are a couple different ways to trade a stock that is in a down trend. Let me list a few. You can swing trade a stock that is in a downtrend. When you do this you are looking to short the stock at resistance and buy it back at support. DO NOT buy a down trending at support and try and to sell it at resistance. This is both risky because the stock will typically be heading lower and is much more likely to break down to new lows then it is to head up to new highs. Once more it may not produce that much of a reward if it even works. Another strategy is to be a trend trader. The idea behind this strategy is to short it at resistance and ride it all the way down. Then buy it back when it broke its trend and started to head up. Be careful trend trading on the down side can be harder then trend trading on the up side. This is because most traders are bullish and do not like shorting stocks. On downtrends you may also get some bullish pressure from people looking to buy at a bottom. The last way that people trade a stock going down is to look at its fundamentals. If the stock is strong and undervalued then it MAY eventually come back up. This is a risky strategy and can take months or years before you see the stock reverse. So, you would really have to be in the stock for the long term if you are waiting for it to turn around. Most traders will tell you that during a down trending market it is better to not be bullish, because stocks are more likely to keep going down then to turn around all of a sudden and it can take a lot to come back from a huge loss in the market. For instance a 50% loss on a stock means you will have to see that stock double again just to break even. That can take years to happen on a good stock. |
