Downward Trend-Lines and Channels

Downward Trendline MT4 Trend Line Indicator

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

Since trading price moves downwards in a zig-zag kind of manner traders usually draw a downward trendline which shows the general downwards direction of the trading prices. In market technical analysis, this general price direction is known as the TREND by stock traders. In analysis meaning 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 and lower lows. Every price high is lower than the previous and prior high - lower high, & each low is lower than the previous and prior low - lower low therefore showing bearish price movement.

Down trendlines gain & gather 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 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.

Downwards Trend Line MT4 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 & shaping a downward general market direction. These are the points that are used to draw the downwards trend-line.

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 Trend-line on Indices - How to Draw Downward Index Trend-lines in Stock Indices Charts

Trading This Downward Trend Market Move

When trading using this trendline 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 and hits these retracements levels to open sell stock trades. Trades opened at these levels have a high Risk Reward Ratio with minimum drawdown.

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

Downward Channel MT4 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 downwards channel and 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 Downwards 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 and wait for another retracement before opening a short sell trade again.

MetaTrader 4 Tools for Drawing Channels

The tools to draw these channels studies on the MetaTrader 4 stock charts can be found on the Lines Tool-bar within the MT4 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 in 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 MT4 channels drawing tool & select the point to where you want to place this channels tool on the chart.

MT4 Technical Analysis Charts - Downwards Channels

MT4 Trend Lines Tools for Drawing Trend Lines

MetaTrader 4 Toolbar - MT4 Tools for Drawing Trend Lines and 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 trend line drawing tools displayed & shown on the MetaTrader 4 software & select the two points where you want to draw the downwards trend-line.

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

Get More Lessons and Tutorials & Guides:

Trade Stock Indices