How to Draw Trend Lines & Channels on XAUUSD Charts

Sometimes support & resistances are formed diagonally in a similar way like a staircase. This forms a trend which is a sustained movement in one direction either upward or downwards.

A trendline depicts the points of support & resistance for the xauusd trading price, depending on the direction of the market. For an upward moving market trend - trend line will shows the points of support and for a downward moving market trend - trend line will show the areas of resistance - trendlines are mainly used by many traders to determine these resistance and support levels on charts.

A Gold Trend line is a slanting straight line that connects two or more price points and extends into the future to act as a zone of support or resistance for the trading price movement. There are two different types of trend lines: upward trend line and downward trend line. Gold trendline is an aspect of xauusd trading analysis that uses gold line studies to try & predict where the next trading price move will head to. A trader must know how to draw and interpret signals generated by this trend line tool.

The basis of this trading analysis is based upon the idea that markets move in trends. Gold trendlines are used to show three things.

• The general direction of the market - up or down.
• The strength of the current trend - and
• Where future support & resistance will be likely located

If trend lines forms in a certain direction then the xauusd market usually moves in that direction for a period of time until a time when this trendline is broken.

Drawing these trendlines on a chart displays the general trend of the xauusd market which can either be up-wards or downwards.

Below is example of how to draw these trend lines on charts

Course: How to Draw Up-wards Gold Trend Line & Trade Upwards Gold Trend Move

Course: How to Draw Downwards Gold Trend Line and Trade Downward Gold Trend Move

The MT4 software provides charting tools for drawing these trend lines on charts. To draw trendlines onto a chart, xauusd traders can use the trading tools provided in MetaTrader 4 software that is displayed below.

To draw trendlines on a chart just click the XAUUSD MT4 Draw Trend Line Tools as shown above on the MT4 platform technical analysis software and select point A where you want to start drawing the trendline & then point B where you want the trendline to touch. You can also right click in the trendline & on the properties option select the option to extend its ray by ticking the "ray check box", if you do not want to extend the trend line, then untick this option in your MetaTrader 4 software. You can also change other trendline properties such as color and width on this property pop up window of the trendline properties. You can download MT4 software and learn trendline technical analysis with it.

The trend is your friend. Is a popular saying among investors because you should never go against it. This is the most reliable strategy to trade Gold because once xauusd trading prices start to head in one particular direction they can move in that particular direction for sometime - therefore using this market trend trading strategy presents an opportunity to make trading profits from the xauusd market.

Principles of How to Draw XAUUSD Trend Lines

1. Use candle-stick charts

2. The points used to draw the trendline are along the lows of the xauusd trading price bars in a rising market. An upward bullish trend move is defined by higher highs & higher lows.
3. The points used to draw the trendline are along the highs of the xauusd price bars in a falling downward market. A downwards bearish trend move is defined by lower highs & lower lows.
4. The points used to draw trendlines are extremes points - the high or the low trading price. These extremes are important because a close beyond the extreme tells investors the trend may be changing. This is an entry or an exit signal.
5. The more often a trendline is hit but it's not broken, the more powerful its signal.

There are two main ways of trading this trend line technical analysis set-up:

1. The Trendline Bounce - Gold Trend Line Bounce
2. The Trend Line Break - Gold Trend Line Break

Technical Analysis Methods of XAUUSD Trend Lines

The trendline bounce is a continuation signal where xauusd trading price bounces off this trend line to continue moving in the same direction. In a downward trend, the xauusd market will bounce downwards after hitting this trend line level which is the resistance level. In an upward trend, the xauusd market will bounce up-wards after hitting this trend line level which is the support level.

The trendline break is a reversal signal where the xauusd market goes through the trendline & starts moving in the opposite direction. When a up trend is broken then the sentiment of the xauusd market reverses and becomes bearish & when a down trend is broken then the xauusd market sentiment reverses & becomes bullish.

For very strong trends, after this trendline break signal, the xauusd trading price will consolidate for some time before moving in the opposite direction. For short term trends then this trend line break signal will mean price might reverse direction immediately.

In gold trading, both the trend line bounce and the trend line break that are used in analysis charts are based upon these trend line levels being support & resistance areas.

Entry, Exit & Setting stops:

This trend line trading method is used to determine good entry and exit points, protective stops are placed just above or below these trend lines. The trend line bounce is a low-risk entry technique used by traders to place entry trades after trading price has retraced. Gold trades are setup along these trend line levels and a stop loss placed just above or below these trend lines.

The trendline break is a crucial indicator of possible trend reversal. When the trendline is broken the xauusd trading price starts move in the opposite direction. This provides an early exit signal for traders to exit their open trades and take profits. When there a penetration of these trend line levels, it's a signal that the xauusd trading price can start moving in the opposite direction.

Unlike other trading analysis indicators there is no formula used to calculate the trend line, this trend line formation is just plotted between two chart points on the xauusd chart.