How to Draw Trend Lines and Channels on Gold Trading Charts
Sometimes support and resistance levels are formed diagonally in a similar way like a staircase. This forms a price trend which is a sustained movement in one direction either upward or downwards.
This trend can be depicted by a trend-line.
A trend line depicts points of support and resistance for the price, depending on the direction of the market prices. For an upward moving market a trend-line will show the points of support & for a downwards market the trend line will show areas of resistance. Trend lines are mainly used by investors to determine these points of support and resistance.
A Trendline is a straight line that connects two or more price points & then extends into the future to act as a level of support or resistance.There are two types of trend-lines: upward trend line and downward trend-line. Trend line is an aspect of technical analysis that uses line studies to try & predict where the next price move is likely to head to.
A trader wanting to trade Gold metal online using technical analysis must know how to draw and interpret the trading signals generated by this trend line trading tool.
Trend line analysis is based upon the idea that the market prices of Gold move in trends. The trend-lines show three things about the current market trend, these are:
- The general direction of the market - whether up or down
- The strength of the current move
- Where future support and resistance points will likely be located
If a trend line forms in a particular direction, then the market usually moves in that direction for a period of time until the time when this trend is broken. When the trend is broken the trend line will also be broken - meaning price will move below an upward trend line or above a downward trend line.
Plotting trend-lines on Gold charts shows the general trend of the XAUUSD prices - which can either be upward or downward.
The example below show how to draw trend-lines:
Upward Trend-Line
Upward Trendline - Upward Trend of XAUUSD Prices
Downward Trend-Line
Downward Trendline - Downward Trend of XAUUSD Prices
Drawing Trend Lines on Gold Trading Charts Using MetaTrader 4 Platform
The MT4 XAUUSD trading platform software provide technical charting tools for drawing these trend lines on the XAUUSD trading charts. Gold traders can use the drawing tools provided on the MetaTrader 4 platform as shown below to draw these trend lines.
MetaTrader 4 Software Trendline Drawing Tool
To plot trend lines on a XAUUSD chart just click the line drawing tool shown above on the MetaTrader 4 technical analysis software & select point A where you want to start drawing the line and then point B where you want the it to touch. You can also right click on the trend line and after right clicking on it, on the "properties" option choose the option to extend its ray by ticking the "ray check box", if you do not want to extend it, then uncheck this option in your MT4 software platform. You can also change other properties such as color & width of the trend-line on this property settings popup window.
"The trend is your friend". Is a popular saying among investors because you should never go against the trend. The trend is the most reliable method to trade XAUUSD prices because once prices start to move in one direction they can move in that particular direction for quite some time - therefore using this method presents you with the best chances to make profits from the online XAUUSD metal trading market.
Principles of How to Draw Trend-Lines
- Use candlestick charts to draw trend lines
- The points used to draw the trend-lines are along the lows of the price bars in an upward trend market. An upwards bullish moving trend is defined by higher highs and higher lows.
- The points used to draw are along the highs of the price bars in a downward trend market. A downward bullish move is defined by lower highs and lower lows.
- The points used to plot trend-lines are extremes points - the high or the low price. These extreme points are important because a close beyond the extreme tells investors & traders that the market trend of the Gold metal prices might be changing. This is interpreted as an entry or an exit signal.
- The more often a trend line is hit but not broken, the more powerful its trading signal is.
There are two main ways of trading this setup:
- The Bounce
- The Break
Technical Analysis of These Two MethodsThe trend-line bounce is a continuation signal where price bounces off this trend line and continue moving in the same direction as the trend-line. In an upward trend move, the market will bounce upwards after hitting this level which is the support level.
In a downward trend move, the market will bounce downwards after hitting this level which is the resistance level.
The trend line break is a reversal signal where the market goes through the trend line and starts moving in the opposite direction.
When an uptrend is broken then the sentiment of the market reverses and becomes bearishWhen a downtrend is broken then the sentiment of the market reverses & becomes bullish
For very strong trends, after this trend-line break signal, the price will consolidate for some time before going in the opposite direction. For short term trends then this trend-line break signal will mean price might reverse immediately.
In Gold metal trading, both the trend line bounce and the trend line break that are used in technical analysis charts are based upon these levels being support and resistance levels.
Using Trendlines as Entry Signals, Exit Signals & For Setting Stops:
This trend-line trading method is used to determine good entry & exit points for opening and closing Gold trades, protective stops are placed just below or above these trend lines. The trend-line bounce is a low-risk entry method used by investors & traders to place entry trades after price has retraced but the price is still within the market trend direction. Trades are setup along these trend-line levels & a stop loss placed just above or below the trend-line.
The trend line break is a crucial indicator of possible price trend reversal. When a trend line is broken the price starts to head in opposite trend direction. This provides an early exit signal for investors and traders to get out of their open trades & take profits. When there is a penetration of these trend-line levels, it is a signal that the price may reverse begin going in the opposite direction.
Unlike other technical analysis indicators there is no formula used to calculate trend-lines, this trend-line formation is just drawn between two chart points & a trader has to learn how to draw these trend-lines on their Gold metal trading charts.
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