Understanding Stocks

112 UNDERSTANDING STOCKS
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Figure 11-3 Candlestick chart
Downtrend
12/06/02
A stock that is in a downtrend is moving lower and has been for a
while. To create a downtrend, draw a line along the top of the chart in
such a way that you connect at least two points. If a stock is in a downtrend
with high volume (meaning that a lot of people are selling), the
stock could be in trouble. Figure 11-4 shows an example of a stock in
a downtrend.
If a stock is in a downtrend and has been for a while, you have to be
pretty brave to buy the stock. A few years ago, people used to buy
stocks when they were in a downtrend because they assumed that the
trend was only temporary. This aggressive strategy actually worked
until the 2000 bear market arrived. At that point, instead of there being
a temporary dip, most stocks kept going down, wiping out the accounts
of many investors. No matter what you think of technical analysis, it is
a mistake to ignore what you see on a stock chart.
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