Rising trends indicate that the company experiences positive development and increasing buy interest among investors. Rising trends indicate that the stock will continue to rise. Trends often last longer than investors think, and consequently many sell too soon.
When a rising trend breaks downwards it signals a change in the rate of increase. Rising trends often begin with a steep rate of increase, which slows down over time. The company can still be in a long term positive development with optimism reaching ever new investment groups and analysts.
The figure shows what is normally the case when a rising trend breaks downwards. The original trend in black and the new trend in blue.
The figure shows the phases of how a trend reversal arises. Warning signals are triggered at the break downward through the trend floor, moving from B to C, while a sell signal is only triggered at point E, when the price is below that of the previous bottom.
Volume development matters
If a break downward occurs on neutral or decreasing volume, it is often simply a sign of passive investors. This is natural following a stream of positive news, and long term investors can use it to slowly increase their holding in the stock.
On the other hand, if the break downward occurs on increasing volume, it indicates that active sellers are pushing the price down in order to get rid of stocks. This signals a potential negative change in investor psychology and can be seen as an early sell signal. The sell signal is only confirmed when the stock price breaks downwards below the previous bottom in the price chart.
Investtechs analyses will assign a stock in a rising trend breaking downwards only half the technical score of a stock in a rising trend.
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