Downwards Trendlines & Channels

How to Draw Down-ward CFD Trend Lines on Charts

A downwards trendline is drawn above the downward trend pattern formed by consecutive lower highs, the downwards trendline must connect at least 2 highs, with the most recent high being lower. For our downward trend examples we shall use the MT4 analysis software charts to illustrate an example of downward cfds trend.

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

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

CFD Trading Down trendlines gain more validity each time price touches the downwards trend line but does not penetrate the trend line. 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 CFDs 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 downwards general market direction. These are the points that are used to draw the downward trend line.

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

How to Trade Downward Trend Line

When trading with this trend line trading method, this trend line setup will show the general direction of the market as downward therefore traders will only open short sell 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 cfds price retraces up-wards & hits these retracements levels to open sell 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 cfds trades would have made a lot of profits with minimum amount of draw-down/retracement.

How to Draw a CFDs Downwards Channel

A downward channel is drawn by plotting a line that's parallel to the downwards trendline and then adjusting it to touch the bottom boundary of the price movement. This then forms a downwards cfd 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 Downward CFD Channel

The downward cfd channel is used by cfds traders to show levels where it is 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 CFD Channels

The cfd tools to draw these cfd channels studies on the MT4 trading charts are found on the Lines Toolbar within the MT4 trading platform, to access this MT4 tool bar if it is not activated on your MetaTrader 4 Platform, Click in 'View' Next to 'File' at the tops left corner of the MetaTrader 4 Platform and click View, Then Click on 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 cfd channels tool on the chart.

MT4 Technical Analysis Charts - Downward CFD Trading Channels

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

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