In a typical downtrend we see that the stock has broken through its support and begins a trend characterized by lower lows and lower highs.
Note that when the stock will break this trend by making a higher high and a higher low.
Trend lines help us to get a general overview of how healthy the stock is technically. These lines help buyers find dips and excellent buying opportunities.
On the flip side, once a downtrend begins to emerge, shorting (selling first, then buying to cover position) may be the best strategy for short term traders.
Do not base your trades on trend lines only. Trend lines are simply a tool to help you become a smarter and more intelligent investor. Information is a bonus if you know how to apply it. Try finding stocks that have up or down trends.
Remember to spot higher highs and higher lows in an uptrend and lower highs and lower lows in a downtrend. Practice drawing and applying these lines correctly so that you will be able to make making solid investment decisions.
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