Downward Trend-Lines and Channels

Downwards Trendline MT4 Trend Line Indicator

A downward trend line is drawn above the downward trend pattern formed by consecutive lower highs, the downward trend line must join at-least two highs, with the most recent high being lower. For our downwards trend examples we shall use the MetaTrader 4 trading analysis software charts to illustrate an example of downwards trend.

Since trading price moves downward in a zig-zag kind of manner traders usually draw a downward trendline which shows the general downward direction of the trading prices. In market technical analysis, this general price direction is known as the TREND by stock traders. In trading analysis definition we can define this trading down trendline is plotted on chart showing the resistance levels (bearish market direction).

How Do I Draw a Trend Line on a Downward Trend?

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

Down trendlines gain more validity every time price touches/tests the down-ward trend line but does not penetrate the trend-line. A down trend remains the general direction til this series of lower highs and lower lows is broken.

In trading analysis, An upside penetration of a trading down trendline is a trading buy trade signal, and generally the first indicator that the bearish direction of trading prices may soon reverse.

Downward Trend Line MetaTrader 4 Trend Lines Indicator

When it comes to learning how to draw & learning trading analysis of charts, you need to know that when trading market is bearish it forms lower lows and lower highs forming a down-ward general market direction. These are the points that are used to draw the downwards trendline.

To draw this downwards trend setup we use resistances and to do it correctly 2 resistances are needed. When trading price touches/tests this trend-line, then we sell & place stop loss just a few pips above the slanting resistances:

Drawing a Downward Trendline in Indices - How to Draw Downwards Index Trend lines on Stock Indices Charts

Trading This Downward Trend Market Move

When trading using this trend line trading method, this trendline setup will show the general direction of the price as downward therefore traders only will open short sell stock trades. These are the levels and points where if trading price pulls back/retraces then these levels will offer strong resistance. This is why many short sellers will wait til price retraces upward & hits these retracements levels to open sell stock trades. Trades opened at these levels have a high Risk to Reward Ratio with minimum drawdown.

For Example, in the above trading illustration, a stock index trader would have opened short sell trade signals at the resistance1, resistance2, resistance3 & these sell stock trade positions would have made a lot of profits with minimum amount of drawdown/retracement.

Downwards Channel MetaTrader 4 Channel Indicator

A downward channel is plotted by drawing a line that's parallel to the downwards trendline & then adjusting it to touch the bottom boundary of the trading price movement. This then forms a downward channel & as long as the trading stays and remains between these 2 channels the overall general market direction is intact the market direction will continue being bearish.

How to Draw a Downward Channel - How Do I Draw Downward Trendlines on stock index Charts?

Trading the Downward Stock Channel

The downward channel is used by the traders to show levels where it's best to take profits. Traders will book some profit once the trading price touches/tests lower channel & wait for another retracement before opening a short sell trade again.

MT4 Tools for Drawing Channels

The trading tools to draw these channels studies on the MetaTrader 4 stock charts can be found on the Lines Tool-bar within the MetaTrader 4 software, to access this MT4 tool bar if it isn't activated in your MT4 Platform Software, Click in 'View' Next to 'File' at the left top corner of the MetaTrader 4 Software Platform & click View, Then Click on the Tool Bars, Then Tick the Lines Toolbar by pressing on it.

Shown Below is the screen-shot of these MetaTrader 4 tools: just click on this MetaTrader 4 channels drawing tool & select the point to where you want to place this channels tool on the chart.

MetaTrader 4 Technical Analysis Charts - Downward Channels

MT4 Trend Lines Tools for Drawing Trend Lines

MT4 Toolbar - MetaTrader 4 Tools for Drawing Trend Lines & Channels used to obtain these trend line drawing tools is illustrated above, to draw these trend line setups or channels, just select the above MT4 trendline drawing tools displayed & shown on the MetaTrader 4 software and select the two points where you want to draw the downward trend-line.

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

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