Downwards Trendlines & Channels

How to Draw Downward Trend Lines on Trading Charts

A downwards trendline is drawn above the downward trend pattern formed by consecutive lower highs, the downward trend-line must connect at least 2 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 trend.

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

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

Commodity Trading Down commodities trading trend-lines gain more validity every time price touches the downwards trend line but does not 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 & lower highs forming a down ward general market direction. These are the points that are used to plot the downward 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 trading method, this trend line setup will show the general direction of the market as downward therefore traders will only open short sell commodities 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 & hits these retracements levels to open sell commodities trades. Commodities 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 trades would have made a lot of profits with minimum amount of draw-down/retracement.

How to Draw a Downward Channel

A downward channel is drawn by plotting a line that is parallel to the downwards trend-line & then adjusting it to touch the bottom boundary of the price movement. This then forms a downward commodity channel & as long as the price stays between these 2 channels the general market direction is intact the market direction will continue being bearish.

Trading The Downward Commodity Trading Channel

The downward commodity channel is used by traders to show levels where it is best to take profits. Commodities traders will take some profit once the price touches the lower channel and wait for another retracement before opening a short sell commodities trading again.

Meta Trader 4 Tools For Drawing Commodities Channels

The commodity tools to draw these commodity channels studies on the MT4 commodities charts can be found on the Lines Toolbar within the MT4 commodities trading platform, to access this MetaTrader 4 toolbar if it's not activated on your MetaTrader 4 Trading Platform, Click in "View" Next to "File" at the tops left corner of the MT4 Commodities Trading Software and click View, Then Press on Toolbars, Then Check the Lines Tool-Bar by clicking on it.

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 commodity channels tool on the chart.

MT4 Analysis Charts - Downward Commodity Trading Channels

MT4 Toolbar - MT4 Tools for Drawing Trend Lines and Commodities Trading Channels used to obtain these trend-line drawing tools is shown above, to draw these trend line setups or commodity channels, just choose the above MetaTrader 4 trend-line drawing tools shown on the MT4 software and select the two points where you want to draw the down ward trend line.

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