Downwards Trend Lines and Channels

How to Draw Down-ward Trend-Lines on Charts

A downward trend line is drawn above the down-wards trend setup formed by consecutive lower highs, the downwards trendline must join at least two highs, with the recent most high being lower. For our xauusd downward trend illustrations we shall use the MT4 analysis software charts to illustrate example of downward trend.

Since price moves down in a zigzag manner traders generally draw a downwards trend line which shows the general downwards direction of the prices. In market analysis, this general gold price direction is referred to as the TREND by traders. In analysis definition we can define this down trend-line is drawn on a trading chart showing the resistance levels (bearish market direction).

How to Draw Downwards Trendlines on Charts - Simple Trend Following Strategies

A down trend occurs when the price forms series of lower highs & lower lows. Every price high is lesser than previous price high - lower high, and each low is lower than the previous low - lower low henceforth showing bearish price movement.

XAUUSD Down trendlines gain more validity every time price touches the down-wards trend-line but doesn't penetrate the trendline. A down trend remains the general direction until this series of lower highs & lower lows is broken.

In technical analysis, An up side penetration of a down trend-line is a trading buy signal, & normally the first indicator that the bearish direction of gold prices might soon reverse.

Drawing a Downwards Trend Line

In learning how to draw and studying technical analysis of charts, you need to know that when the market is bearish it forms lower lows and lower highs forming a downwards general market direction. These are the points which are used to draw the downward trend line.

To draw this downward trend setup we use resistances and to do it correctly 2 resistances are needed. When price touches this trendline, then we sell and place stop loss just a couple of pips above the sloping resistances:

How Do I Draw Downwards Trend Lines on Charts? - How Do I Analyze Downwards Trend on Chart?

How Do I Trade Downwards Trend Line

When trading with this trendline method, this trendline setup will show the general market direction of the price as downward therefore traders will only open short sell gold trades. These are the levels where if gold price pulls back then these points will provide strong resistance. This is why many short sellers will wait until gold price retraces upwards and hits these retracements levels to open sell gold trades. Trades opened at these technical levels have a high Risk to Reward Ratio with minimum draw down.

For Example, in the above example, a gold trader would have opened short sell signals at the resistance1, resistance2, resistance3 and these sell gold trade positions would have made a lot of profits with minimum amount of drawdown/retracement.

How Do I Draw a Downwards Channel

A downward channel is drawn by drawing a line that is parallel to the downward trend-line & then adjusting such that it touches the bottom boundary of the price movement. This then forms a downward channel and as long as the stays in between these 2 channels the general market direction is intact the market move direction will continue to be bearish.

How to Draw a Downward Channel

Trading the Downwards Channel

The downwards channel is used by online traders to show levels where it's best to take profits. Traders will take some profit once the price touches the lower channel and wait for another retracement before opening a short sell gold trade again.

MT4 Tools for Drawing Channels

The tools to draw these channels studies on the MT4 charts can be found on the Lines Tool Bar within the MT4 software, to access this MT4 tool-bar if it isn't activated on your MT4 Software Platform, Press in "View" Next to the "File" on the top left corner of the MT4 Platform and click View, Then Click in the Tool Bars, Then Tick the Lines Tool Bar by clicking on it.

Below is the screenshot of these MT4 tools: just click on this MT4 channels drawing tool & choose the point to where you as a trader want to place this channels tool on the chart.

MT4 Technical Analysis Charts - Downwards Channels

How to Draw Down-wards Trend Lines on Charts - Placing Trend-Line on Chart Explained

MT4 Toolbar - MT4 Tools for Drawing TrendLines and Channels used to obtain these trendline drawing tools is displayed above, to draw these trendline set-ups or channels, just choose & select the above MT4 trend line drawing tools displayed & shown on the MT4 software and choose the2 points where you want to draw the downwards trend-line.

This trendline strategy is one of the simplest and popular indicators used by the online traders to analyze & interpret the price trend direction.

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