Drawing Downward Trend-Lines & Channels
A Downwards trend line is a line drawn on the XAUUSD chart when the general and 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 downwards price trend. This line will show the general and overall trend of the market price to be downward.
The illustration set-out below explains this concept & explains how prices move when in a downwards trend. When the market is moving downward it keeps forming new resistance levels as it moves downwards and these resistance areas are the ones used to draw the downward trend-line.
Because the market moves in a zigzag kind of manner, traders will normally draw a trend which shows the general downward trending direction.
Downward Trending Market
A downwards trend occurs when the price of Gold makes a series of lower lows and lower highs. Every high is lower than the previous and prior high - lower high and each low is lower than the previous and prior low - lower low therefore showing bearish price movement.
Downward trend-lines gain more validity each time price touches/tests these lines but does not penetrate the line. A downtrend remains the general direction until this series of lower highs and lower lows is broken.
In technical analysis, an upside penetration of a downward trend line is a technical buy signal, & normally the first indication that the bearish direction of Gold prices might soon reverse or at least start to consolidate.
Drawing a Downwards Trend-Line
When the online XAUUSD metal market moves down it forms lower lows & lower highs forming a bearish market movement. A downwards trend line can then be plotted by connecting/joining these lower highs.
To draw this setup we use resistance areas made by the market prices. To draw a downwards trend-line correctly 2 resistance areas are needed. When price touches/tests this downward trend-line we buy & place a stop loss just a couple of pips above this trendline. The diagram below shows an example of a downward trend-line.
Downward Trendline - Gold Trading
The trend-line setup will show the general direction of the Gold market as bearish therefore traders only will open sell trade positions as long as price movement is within this setup and within the resistance levels. These are the levels and points where if the price retraces then these levels will provide strong and major resistances for the price. This is why many sellers will wait until price rallies upwards & hits these retracements levels to open sell trades. Trades opened at these levels have a very high Risk: Reward Ratio & are very profitable.
In the above setup the trader would have opened sell/short trade transactions from the signals generated at the resistance1, resistance2, resistance3 & these trade positions 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 is 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 market remains in between these 2 channels the bearish market movement of Gold prices will continue heading and going down.
Downward Channel - Gold Trading
Trading the Downwards Gold Prices Channel
This Downwards channel is used by XAU/USD traders to show levels where it best to tp orders. Gold traders will take some profit once the price touches/tests lower channel and wait out for another retracement before opening another sell trade again.
MT4 Tools for Drawing Downwards Trendline and Channels
The tools to plot these setups in the MT4 are located on the MT4 drawing toolbar within the MT4 platform, to access this toolbar if it's not activated on your software, Click in "View" Next to "File" at the top-left corner of MT4 and click "View", Then Press on the "ToolBars", Then Check & choose the "Lines Toolbar" by pressing on it.
Below is the screen-shot of the MT4 trend-lines drawing tool bar. To draw a trend line on a Gold chart just click on this tool & choose the point where you as the trader want to draw.
MetaTrader 4 Tool-Bar for Drawing Downwards Trendline and Channels
Get More Tutorials and Tutorials:
- How Do You Trade Fibo Extension XAU USD Course Course?
- How to Set Commodity Channel Index CCI XAU USD Indicator on Chart
- How Do You Trade 100.0% Fib Extension Level?
- Characteristics of the Three Major XAU USD Sessions
- Learn How to Generate Signals using Gold Strategies
- Types of XAUUSD Bar Charts & Types of Bar Charts in XAUUSD
