MT4 Tools for Drawing Trendlines and Channels
How to Draw Down-ward Trend Lines on Charts
A downwards trend line is drawn above the downward trend pattern formed by consecutive lower highs, the downwards trend-line must connect at-least two highs, with the recent most high being lower. For our downward trend examples we shall use the MT4 technical analysis software charts to illustrate an example of downward xauusd trend.
Since xauusd price moves downwards in a zig zag manner traders normally draw a downward trend line which shows the general downward direction of the prices. In market technical analysis, this general xauusd price direction is known as the TREND by traders. In xauusd analysis definition we can define this down trendline is plotted on a chart showing the resistance levels (bearish market direction).
A down trend occurs when the price forms series of lower highs & lower lows. Each price high is lower than the previous high - lower high, and each low is lower than the previous low - lower low hence showing bearish xauusd price movement.
Down trendlines gain more validity every time xauusd price touches the downwards trendline 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 trading analysis, An up-side penetration of a down trend line is a technical buy signal, and usually the first indication that the bearish direction of prices might soon reverse.
Drawing a Downward Trend Line
When it comes to learning how to draw & learning trading analysis of charts, you as a trader need to know that when market is bearish it forms lower lows & lower highs forming a down-ward 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 xauusd price touches this trend line, then we sell and place stop loss just a few pips above the sloping resistances:
How Do I Trade Down-ward Trend Line
When trading using this trend line trading method, this trend line setup will show the general direction of the market as downwards therefore traders will only open short sell trades. These are the levels where if price pulls back then these points will provide strong resistance. This is why many short sellers will wait until xauusd price retraces up-ward & 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 trading example, a trader would have opened short sell signals at the resistance1, resistance2, resistance3 and these sell xauusd trades would have made a lot of profits with minimum amount of drawdown/retracement.
Downwards XAUUSD Channel MT4 Channel Indicator
A downward channel is drawn by drawing a line that is parallel to the downwards trendline & then adjusting it to touch the bottoms boundary of the price movement. This then forms a downward channel and as long as price stays between these 2 channels the general market direction is intact the market direction will continue to be bearish.
Trading the Downward XAUUSD Channel
The downwards channel is used by traders to show levels where it's best to take profits. Traders will book some profit once the price touches lower channel & wait for another retracement before opening a short sell trade again.
Downwards XAUUSD Channels MT4 Channels Indicator
The trading tools to draw these channels studies on the MT4 charts can be found on the Lines Toolbar within the MT4 platform, to access this MT4 tool-bar if it's not activated on your MT4 Platform, Click in 'View' Next to 'File' at the top left corner of the MT4 Software and click View, Then Click on Tool-bars, Then Check the Lines Toolbar 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.
MT4 Analysis Charts - Downward XAUUSD Channels
MT4 Toolbar - MT4 Tools for Drawing Trend Lines and XAUUSD Channels used to obtain these trendline drawing tools is shown above, to draw these trend line setups or channels, just select the above MT4 trendline drawing tools shown on the MT4 software and select the two points where you want to draw the downwards trend line.
This trend line strategy is one of the simplest and popular indicators used by traders to analyze the market trend direction.
