Support & Resistance Areas in Gold Trading
Support & Resistance levels is one of the most widely used concepts in trading Gold metal online. Support & resistance zones are also often used in trading other financial instruments like Forex currencies, stock indices and commodities.
Support & resistance zones that form on the Gold chart tend to act as barriers which prevent the price of XAUUSD getting pushed beyond and past a particular level in a certain direction.
Support Area
As the name suggests this level supports the price against moving lower beyond a specified price.
A support zone prevents the price of Gold from getting pushed downwards beyond this specific level. Hence, this support level is regarded as a floor for the Gold price as it halts the market from going downwards past a certain point.
Support Area
On the above example illustration the price moved down until it hit a support zone. Once price tests/touches this technical level it slightly bounced back up and then resumed going down again until it hit the support zone & bounced up again.
This process of hitting the support level and then bouncing back is referred to as testing the support.
The more times a support zone is tested the stronger it is, in the above example the support level was tested 3 times without breaking after which the market downwards trend finally reversed & started moving in the opposite trend market direction.
Once this level has been determined on the Gold chart, then traders use it to place and open their buy orders and at the same time put a stoploss order just a couple of pips below this technical level.
Resistance Area
Resistance level is a level that prevents the prices of Gold from getting pushed upwards above a specified level. This level can therefore be regarded as a ceiling for the price because this level prevents the price from moving upward beyond this point.
Resistance Area
On the example shown above the price moved up until it hit a resistance zone. Once the price hit this level it retraced and then resumed heading up until it hit the resistance zone again.
The resistance zone was tested 5 times without breaking, the more times a resistance zone is tested without breaking, the stronger it is.
Once this resistance zone has been determined, traders will use this level to place their sell orders at this level & at the same time put a stop loss order a few pips above this resistance zone.
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