Downwards Trendlines & Channels

How to Draw Down-ward Trend Lines on Charts

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

Since price moves down in a zigzag manner traders normally draw a down ward trendline which shows the general downward direction of the prices. In trading market technical analysis, this general price direction is referred to as the TREND by traders. In technical analysis definition we can define this down trendline is drawn on chart showing the resistance levels (bearish market direction).

A down trend forms when the price forms a series of lower highs & lower lows. Each price high is lower than the previous high - lower high, & each low is lower than the previous low - lower low therefore showing bearish price movement.

Stocks Down stock trading trend-lines gain more validity each 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 and lower lows is broken.

In technical analysis, An upside penetration of a down trend line is a technical buy signal, and usually the first indication that the bearish direction of prices may soon reverse.

Drawing a Downwards Trend Line

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

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

Trading This Downward Trend Market Move

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

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

How to Draw a Stock Downwards Channel

A downward channel is drawn by plotting a line that's parallel to the downward trendline and then adjusting it to touch the bottoms boundary of the price movement. This then forms a downward channel & as long as the price stays between these two channels the general market direction is intact the market direction will continue being bearish.

Trading The Downwards Channel

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

MT4 Tools For Drawing Channels

The tools to draw these channels studies on the MT4 charts are found on the Lines Toolbar within the MT4 platform, to access this Meta Trader 4 tool-bar if it is not activated on your Meta Trader 4 Platform, Click in "View" Next to "File" at the tops left corner of the MetaTrader 4 Platform & click View, Then Click on the Tool-bars, Then Tick the Lines Tool-bar by clicking on it.

Shown Below is the screenshot of these MT4 tools: just click on this MT4 channels drawing tool and select the point to where you want to place this channels tool on the chart.

MetaTrader 4 Analysis Charts - Downwards Trading Channels

MetaTrader 4 Toolbar - MT4 Tools for Drawing Trendlines & Stocks Trading Channels used to obtain these trendline drawing tools is shown above, to draw these trend line setups or channels, just select the above MT4 trend-line drawing tools shown on the MT4 software and select the two points where you want to draw the downwards trendline.

This trend line strategy is one of the simplest and popular technical indicators used by traders to analyze the market trend direction.