Support and Resistance Areas in Gold Trading
Support and Resistance levels is one of the most widely used concepts in trading Gold metal online. Support and resistance zones are also commonly used in trading other financial instruments such as Forex currencies, stock indices and commodities.
Support and resistance zones that form on the Gold price chart tend to act as barriers that prevent the price of XAUUSD getting pushed beyond a certain point in a certain direction.
Support Area
As the name suggests this level supports price against moving lower beyond a particular price.
A support zone prevents the price of Gold from getting pushed downwards beyond this particular level. Hence, this support level is regarded as a floor for the Gold price as it prevents the market from moving downwards past a certain point.
Support Area
On the above example the price moved down until it hit a support zone. Once price touches this 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 called 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 market direction.
Once this level has been determined on the Gold trading chart, then traders use it to place their buy orders & at the same time put a stop loss order just a couple of pips below this level.
Resistance Area
Resistance level is a level that prevents the prices of Gold from getting pushed upwards above a particular level. This level can therefore be regarded as a ceiling for the price because this level prevents the market 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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