Downward Trend Lines & Channels

Downwards Trend Line MT4 Trend Line Indicator

A downward trendline is drawn above the downwards trend pattern formed by consecutive lower highs, the downward trendline must connect at least two 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 trading price moves downwards in a zig zag manner traders normally draw a downwards trendline which shows the general downward direction of the trading prices. In market technical analysis, this general trading price direction is referred to as the TREND by stock traders. In technical analysis definition we can define this indices trading down trend-line is plotted on chart showing the resistance levels (bearish market direction).

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

Down trendlines gain more validity every time price touches the down-wards trendline but doesn't 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 indices trading down trend line is a technical buy signal, and usually the first indication that the bearish direction of trading prices may soon reverse.

Downward Trend Line MT4 Trend Lines Indicator

When it comes to learning how to draw and learning technical analysis of charts, you need to know that when the trading market is bearish it forms lower lows & lower highs forming a down-wards 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 trading 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 stock trades. These are the levels where if trading price retraces then these points will provide strong resistance. This is why many short sellers will wait until trading price retraces upward and hits these retracements levels to open sell stock 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 stock trades would have made a lot of profits with minimum amount of drawdown/retracement.

Downwards Indices Channel MT4 Channel Indicator

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

Trading the Downward Stock Indices Channel

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

MT4 Tools for Drawing Indices Channels

The trading tools to draw these indices channels studies on the MT4 stock charts can be found on the Lines Toolbar within the MT4 platform, to access this MetaTrader 4 tool bar if it is not activated on your MT4 Trading Platform, Click in 'View' Next to 'File' at the tops left corner of the MT4 Trading Software and click View, Then Click on the Tool-bars, Then Tick the Lines Tool-bar by clicking on it.

Shown Below is the screenshot of these MT4 tools: just click on this MetaTrader 4 channels drawing tool and select the point to where you want to place this indices channels tool on the chart.

MetaTrader 4 Technical Analysis Charts - Downward Indices Channels

MT4 Toolbar - MT4 Tools for Drawing Trend Lines and Indices Channels used to obtain these trendline drawing tools is shown above, to draw these trend line setups or indices 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 downward trend line.

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