How to Interpret Downward Trend Lines on Charts
How Do I Interpret Downward Trend Lines on Charts?
A downward trend line is formed by consecutive lower highs on the price chart - the downward trend line is drawn downwards connecting these lower highs - the downward trend line must connect at-least 2 price highs - with the recent most price high being lower.
Because price moves down ward in a zig-zag manner - traders will draw a down ward trend line showing the general downwards price direction. In analysis - this general direction of price is referred to as the XAUUSD Trend. In analysis - xauusd downward trend line is drawn on a chart showing the resistance levels.
Interpret Downwards Trend-Lines on Charts
A downward trend forms when price makes a series of lower price highs & lower price lows. Each price high is lower than the previous price high - lower high: LH, & each price low is lower than the previous price low - lower low therefore showing a downward movement of price.
Read Downward Trend Lines on Charts
XAUUSD downward trend lines gain more validity every time the price touches the downward trend line but doesn't penetrate the downward trend-line. A downward trend remains the general direction of price movement until this series of lower highs and lower lows is broken.
In analysis - An upside penetration of a downward trend line is interpreted as a reversal xauusd signal, & is interpreted that the bearish downwards movement of prices may soon reverse.
Analyzing a Downward Trend Line
To learn how to draw and analyze downward trend, you need to know that in xauusd when the trend is bearish it forms lower lows and lower highs on the price chart - forming a downward general market movement direction. These are the chart points that are used to draw the downward trend line.
To draw the downwards trend line - traders use resistance levels and to draw the downwards trend line correctly two resistance levels are required. When the price touches this downwards trend line - traders will open sell trade transactions and place stop loss orders just a few pips above the downward trend line:
Interpret Downwards Trend-Lines on Charts
How Do I Interpret Downward Trendlines on Charts?
When trading using this downward trend-line method - the general direction of the market is interpreted as downward & therefore traders only will open sell trades when trading this downwards trend line setup. The downward trend line shows the levels where if the price pulls back then these levels will provide strong resistance. This is why these levels are used by many traders to determine when to open sell trades. XAUUSD trades opened at these levels will have a high Risk to Reward Ratio with minimum draw down - minimum price pullback.
For example, in the above downwards trend line example - a trader would have generated sell signals at the resistance 1, resistance 2, resistance Three and these sell signal would have made good trades with minimum amount of draw down ( price retracement).
Downwards Trendlines
The MetaTrader 4 tools to draw these trend lines on MT4 charts can be found on the Lines Tool-Bar within the MT4 platform, to access this Meta Trader 4 tool bar if it isn't activated on your MetaTrader 4 Platform, Click in 'View' Next to 'File' at the top left corner of MetaTrader 4 Platform & click View, Then Press on ToolBars, Then Tick the Lines Tool-Bar by clicking it.
Below is the explanation of these MT4 trend-line drawing tools: just click on this MT4 trend lines drawing tool and select the points where you want to place this trend lines on the chart.
Meta Trader 4 Analysis Charts - Downwards Trend-Lines
How Do I Interpret Downward Trend Lines on Charts
Meta Trader 4 Charts Tool Bar - Meta Trader 4 Tools for Analyzing Trend Lines used to draw trend lines is shown above - to draw these trend lines - select the above MT4 trend line plotting tool & choose the two chart levels where you want to plot the downward trend-line.
Trend line strategy is one of the most popular trading analysis methods used by traders to analyze and read trend moves.
Interpret Downwards Trend-Lines on Charts
