Drawing Downward Trend Lines & Channels

A Downward trend-line is a line drawn on the Gold trading chart when the overall trend of the prices is moving downward & hence this line is drawn above these downward trending prices by joining at-least two highs of the downward price trend. This line will show the overall trend of the price to be downward.

The example illustration below explains this concept & explains how the prices move when in a downward trend. When the market is moving downwards it keeps forming new resistance zones as it moves downward and these resistance zones are the ones used to draw the downward trend-line.

Because the market heads in a zigzag manner, traders will usually draw a trend which shows the general downward trending direction.

Downwards Trending Market

A downward trend occurs when the price of Gold makes a series of lower lows and lower highs. Every high is lesser than prior high - lower high and each low is lower than prior low - lower low therefore showing bearish price movement.

Downward trend-lines gain more validity every time the price tests/touches these lines but doesn't penetrate the line. A downtrend remains the general direction until this series of lower highs & lower lows is broken.

In trading analysis, an up side penetration of a downward trend line is a technical buy signal, & generally the first indicator which the bearish direction of XAUUSD Gold prices may soon reverse or at least begin to consolidate.

Drawing a Downward Trend-Line

When the online XAUUSD metal market moves down it forms lower lows & lower highs forming a bearish price movement. A downwards trend line then can be drawn by joining the lower highs.

To draw this setup we use resistance zones made by the prices. To draw a downward trend line correctly two resistance zones are needed. When price tests/touches this downward trend-line we buy and place a stop loss order just a few pips above this trend line. The diagram below shows an example of a downward trend-line.

Downwards Trend Line - XAU USD Trading

The trend line setup will show the general direction of the Gold market as bearish therefore traders will only open sell trade positions as long as price movement is within this setup and within the resistance zones. These are the points where if the market price retraces then these areas will give strong and major resistances for the price. This is why many sellers will wait until price rallies upward and touches these retracements levels to open sell trade positions. Trades opened at these levels have a very high Risk: Reward Ratio and are very profitable.

In the above setup the gold trader would have opened sell/short trade transactions from the trading signals generated/derived at the resistance1, resistance2, resistance3 & these trade transactions 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's parallel to the Downward trend-line and 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 stays and remains between these two channels the bearish price movement of Gold prices will continue heading down.

Downward Channel - XAUUSD Trading

the Downward Gold Prices Channel

This Downward channel is used by XAU USD traders to show levels where it best to take profit orders. Gold traders will take some profit once the price tests/touches lower channel and wait out for another retracement before opening another sell trade again.

MT4 Tools for Drawing Downward Trendline and Channels

The tools to plot these setups on the MetaTrader 4 are located on the MT4 drawing toolbar within the MetaTrader 4 platform software, to access this tool-bar if it is not activated in your platform, Press in "View" Next to the "File" at the top left corner of the MT4 & click "View", Then Press on the "ToolBars", Then Tick 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 chart just click on this tool & select the point where you as a trader want to draw.

MT4 ToolBar for Drawing Downward Trendline and Channels

Study More Topics & Tutorials:

• How to Use MT4 Balance of Power BOP Indicator in MT4 Platform Software
• FTSE MIB Guide Index FTSEMIB 40 Stock Index Trading Strategy Lesson Tutorial
• Multiple Chart Time Frame Analysis in Trading Forex
• Trade DJI 30 Indices Trade Strategy
• XAU USD Metal Trade
• Best Time to Trade GBPUSD Open Hours & Close Time
• Bollinger Percent B or Bollinger %b MetaTrader 4 Trading Indicator
• Which Online Broker Can You Use to Trade DAX 30 Index?
• How Can I Interpret FX Pending Trade Orders?