Horizontal trend breaking downwards

A break downward through a horizontal trend signals a negative change in investor psychology and is a sell signal.

Horizontal trends indicate that the investor base is balanced over time. When the price breaks downwards, it signals increased sell interest – there is a majority of sellers in the stock. This may well be a result of fundamental news. Especially if a break downward happens on increasing volume, it signals the start of a falling trend and thus continued fall in the long term.

A break downward through a horizontal trend is a stronger signal if the price also breaks below the bottom points that define the trend floor. Otherwise there will still be support at these points, which means the price can more easily rise back up again.