I just shorted Gold (XAU/USD) 2 days back. It is in a clear downtrend channel. It touched the bottom of the channel 4 times. (Remember I shorted Gold back in 1st October 2012). My initial stop loss was 1643. I have moved that to 1614 to protect my profits from turning in losses should there be a rally from the current level 1580. My target price is 1532.
Reasons for this trade? This is a downtrend. I follow the trend unless the MACD Histogram has a divergence. I entered my short position on a dead cat's bounce (wiki it!), shown by that small red arrow. I expect it to fluctuate down to my target level that was defined by previous resistance (look to the left of the chart). After the 4th time of knocking on the bottom of the channel, probability is good for further weakness to the south.
Why did I not take the trade from the top of the channel, you may ask? Well, it is because I could not see that it was in a clear downtrend channel before. I only happened to see it 2 days before and traded on the dead cat's bounce. Some things are always clearer on hindsight. That is the known as hindsight bias (google it, it is useful to be aware of if you are a beginner).
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