Drawing Downward Trend Lines and Channels
A Downward trend-line is a line drawn on the Gold trading chart when the general trend of the prices is moving downward and therefore this line is drawn above these downward trending prices by connecting at least two highs of the downwards price trend. This line will show the general trend of the market to be downwards.
The example below explains this concept & explains how prices move when in a downwards trend. When the market is moving downwards it keeps forming new resistance levels as it moves downward and these resistance levels are the ones used to draw the downward trend-line.
Because the market moves in a zigzag manner, traders will normally draw a trend which shows the general downward trending direction.
Downward Trending Market
A downward trend occurs when the price of Gold makes a series of lower lows and lower highs. Each high is lower than the previous high - lower high and each low is lower than the previous low - lower low therefore showing bearish price movement.
Downward trend lines gain more validity each time price touches these lines but does not penetrate the line. A downtrend remains the general direction until this series of lower highs and lower lows is broken.
In technical analysis, an up side penetration of a downward trend line is a technical buy signal, & usually the first indication that the bearish direction of XAUUSD prices may soon reverse or at least begin to consolidate.
Drawing a Downwards Trend-Line
When the online XAUUSD metal market moves down it forms lower lows & lower highs forming a bearish market movement. A downwards trend line can then be plotted by connecting these lower highs.
To draw this setup we use resistance levels made by the prices. To draw a downwards trend line correctly two resistance levels are needed. When price touches this downwards trend line we buy and place a stop loss just a few pips above this trend-line. The diagram below shows an example of a downward trend-line.
Downward Trend-Line - XAUUSD Trading
The trend line setup will show the general direction of the Gold market as bearish therefore traders will only open sell trades as long as price movement is within this setup and within the resistance levels. These are the levels where if the market retraces then these points will provide strong resistances for the price. This is why many sellers will wait until price rallies upward and touches these retracements levels to open sell trades. Trades opened at these levels have a very high Risk: Reward Ratio and are very profitable.
In the above setup the trader would have opened sell/short trades from the signals generated at the resistance1, resistance2, resistance3 & these trades would have made a lot of profits with minimum amount of drawdown/retracement. This is why many traders like to trade using this trend-line trading setup.
Drawing Downward Channel
A downwards channel is drawn by drawing a line that is parallel to the Downward trend-line & then this new line is adjusted to touch the bottom boundary of the price movement. This then forms a channel of the price and as long as the price stays between these two channels the bearish market movement of Gold prices will continue moving down.
Downward Channel - XAUUSD Trading
Trading the Downward XAUUSD Prices Channel
This Downward channel is used by XAUUSD traders to show levels where it best to take profits. Gold metal traders will take some profit once the price touches lower channel and wait for another retracement before opening another sell trade again.
MetaTrader 4 Tools for Drawing Downward Trendline & Channels
The tools to plot these setups on the MT4 are located on the MetaTrader 4 drawing toolbar within the MetaTrader 4 platform, to access this toolbar if it isn't activated on your platform, Click in "View" Next to "File" at the top left corner of the MT4 & click "View", Then Click on "ToolBars", Then Check and choose the "Lines ToolBar" by clicking on it.
Below is the screen-shot of the MT4 trend lines drawing toolbar. To draw a trend line on a XAUUSD trading chart just click on this tool & select the point where you want to draw.
MT4 ToolBar for Drawing Downward Trendline & Channels
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