Marathon Digital Holdings, Inc (NASDAQ:MARA) and Riot Blockchain, Inc (NASDAQ:RIOT) are both trading higher in strong downtrends.
A downtrend occurs when a stock consistently makes a series of lower lows and lower highs on the chart.
The lower lows indicate the bears are in control while the intermittent lower highs indicate consolidation periods. Traders can use moving averages to help identify an uptrend with descending lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages), indicating the stock is in a steep shorter-term downtrend, and descending longer-term moving averages (such as the 200-day simple moving average), indicating a long-term downtrend.
A stock often signals when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs often take place at resistance and support levels.
In a downtrend, the “trend is your friend” until it’s not, and in a downtrend, there are ways for both bullish and bearish traders to participate in the stock.
- Bearish traders who are already holding a position in a stock can feel confident the downtrend will continue unless the stock makes a higher high. Traders looking to take a position in a stock trading in a downtrend can usually find the safest entry on the lower high.
- Bullish traders can enter the trade on the lower low and exit on the lower high. These traders can also enter when the downtrend breaks and the stock makes a higher high, indicating a reversal into an uptrend may be in the cards.
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The Marathon Chart: Marathon has been trading in a steep downtrend since Nov. 9, the day before Bitcoin and Ethereum reached new all-time highs of $69,000 and $4,867.81, respectively, and fell into their own downtrends.
- On Wednesday, Marathon gapped up slightly but immediately ran into a group of sellers and fell to fill the gap.
- Marathon’s most recent lower low was printed on Monday at the $26.27 levels. If the stock falls below the area over the coming days, it will confirm the downtrend is still intact.
- If Marathon closes the trading day near to the $30.50 level it will print a doji candlestick, which may indicate the lower high is in and the stock will trade lower over the coming days.
- Marathon has resistance above at $30.55 and $34.41 and support below at $27.13 and $23.96.
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The Riot Chart: Riot has been trading in a downtrend since Nov. 15, with the most recent lower low printed on Monday at $18.75 and the most recent lower high created at the $24.63 level on Jan. 4.
- Like Marathon, Riot gapped up slightly higher on Wednesday, but filled the gap intraday.
- Unlike Marathon’s stock, which may close the day over the eight-day exponential moving average (EMA), Riot’s stock is currently rejecting the eight-day EMA, which is bearish.
- Riot has resistance above at $23.93 and $27.46 and support below at $20.68 and $17.90.