How to Trade a Down trend Reversal

How to Trade Downwards Trend Reversal: How to Identify a Downward Trend Reversal Signal

Down trend Trading Reversal

When price breaks-out above the downward trendline (resistance) the price will then move up

How to Trade Downwards Trend Reversal: How to Identify a Downward Trend Reversal Signal

Indices Down Trend Reversal Strategy

After trading price has moved in a down trend direction for an extended period of time within a down trading trend it reaches a point where it stops moving within the downward trend. When this happens we say that the down trend line has been broken & this is interpreted as a trading down trend reversal signal.

Since the downwards trend line is the point of resistance and this point of resistance has been broken after a trendline break - we then expect trading price to move towards the opposite direction upwards and this is interpreted as a down trend reversal signal.

When this happens traders will close the open sell orders which they had sold. This is referred to as taking profit.

This trading down trend reversal signal is considered to be confirmed with formation of a higher low. This trading down trend reversal trade setup also provides a trading opportunity to open a buy trade once the down trend line is broken -indices down trend-line reversal trade signal.

NB: Sometimes when price breaks its indices down trend it may first of all consolidate before moving in the opposite direction. Either way it's always good to take profit when the market trend reverses.

To trade this trading down trend reversal setup as a trader once you open a new trade in direction of the trend reversal the price should immediately move up-wards in that particular direction, in a trading price break out manner. This means that the trading prices should immediately move up-wards in that particular direction of the reversal signal without much of a resistance.

If on the other hand the trading prices do not immediately move in the upwards direction of the price breakout then it is best to close out the buy trade because it means that the down trend is still holding.

Another tip is to wait for the downward trend line to be broken & for the trading market to close above it so as to confirm this down trend reversal signal.

What happens is that most traders open trades waiting for a trading reversal even before the down trend is broken, only for the price to touch this downward trend line and for current market down trend direction to hold and indices to continue with the current market down trend.

Therefore, when trading this trading down trend reversal setup it is best to wait until the price break out has been confirmed by trading price closing above the trend line.

• Downwards Market Trend Direction Reversal - this down trend reversal signal is confirmed once the price closes above the down-wards trendline, this should be the correct time to open a buy trade, so as to avoid a trade whipsaw.