Technical Analysis Basis - Technical Analysis in Gold Trading

Technical analysis is based on 3 factors and aspects common when trading the XAUUSD price charts. These 3 common factors when it comes to the Gold market are:

Prices Move in Trends
The Market Price Action Discounts Everything
History Tends to Repeat Itself When it Comes to Market Price Moves

Prices Move in Trends

XAU USD price moves follow trends - a trend is an overall price direction either upwards or downward. When it comes to Gold the prices of XAUUSD follows trends & this means that once a price trend in a particular direction is formed then prices keep moving in that particular direction for a period of time and the future movement direction of the price is likely to be in the same market direction as that of the Gold price trend than for it to be against it. Most of the XAUUSD trading strategies are based around this concept.

Therefore technical analysis in XAUUSD will be the study of how to interpret this trend in order to identify which direction the prices of Gold are likely to head to next and hence help the online trader to know what side of the market to trade.

Price Action Discounts Everything

In technical analysis, the only factor considered in this analysis is the price movement or what is commonly known as price action. Technical analysis study assumes that at any one given time, the price of Gold reflects everything that has or could affect the movement of the Gold prices. This analysis hence only studies the price action - which is the product of Supply and Demand of XAUUSD.

History Tends to Repeat Itself When it Comes to The Price Moves

History tends to repeat itself mainly in the patterns of the price action. This repetitive nature of the price patterns is attributable to investor psychology. This is because the online traders participating in the trading of Gold tend to provide a consistent reaction to the market for most times. Technical analysis study uses these price patterns that are commonly referred to as patterns to analyze the movement of XAUUSD Gold prices. Although the chart patterns represent historical info, these analysis patterns are still relevant because they display patterns that often repeat themselves.

Understanding trading analysis when trading Gold prices can be a helpful method that the Gold traders can use in determining when the market is trending and when it isn't trending. When the prices of XAUUSD are heading in one particular direction then as a gold trader you want to be in on this trade, but if the market isn't trending then as a gold trader you don't want to be trading in this market because all you'll do is lose money because you will be caught by many fake outs and as investors this is not what we want.

Unfortunately, most of the online traders try to fight the market trends & buy or sell in the direction that is the in the opposite trend of these price trends - in an effort to pick a market top or market bottom, only to see the market price move further in the direction of the continuing market trend.

Another common mistake which traders often make when they're caught up in the wrong market direction is to add onto losing trades in the hope that once the price trend reverses they will make money faster by averaging down their trading losses.. This is however not a good strategy especially in a strong trending market - it is something that the experienced investors never do, because they know that once prices begin moving in a particular direction they continue heading in that particular direction for quite a while. "The Trend is Your Friend" is a popular saying among investors, never go against the trend.

This study of trading analysis aims at alerting traders and traders of high probability trading set-ups that the traders can use to identify when to open trades. Profits in trading the online Gold market comes from using proven methods to find the market trend direction and taking trades in the same direction. However, there are no certainties in the market & traders must practice until they come up with high probability trading setups and patterns that they can use to trade the online XAUUSD market profitably. One way of doing this is by opening a practice demo practice trade account & practice trade strategies on this practice trade account until traders learn how to generate profits using the high probability set-ups that they will have develop after learning more about the different trading analysis concepts used in trading XAUUSD.

About Technical Analysis

With so many investors and traders using the same trading analysis tools, the trading analysis becomes a self fulfilling prophecy. This is because if so many traders use the same level as a buying point, the Gold price then moves upward as everyone makes similar moves at the same time. The next question is how long these market moves will last and hence traders must develop methods understanding xauusd chart moves so that they can know how to determine when to open and when to close out their trades.

In analyzing this Gold prices, the Gold charts are used together in combination with indicators to look for patterns which have occurred in the past under certain circumstances & when these patterns are noted again under similar conditions then traders can use these set-ups to determine whether to open buy or sell transactions - and traders will be making trading decisions with increased probabilities of success because these setups have happened before, & made price to move in a certain direction - & traders can trade based on the same setup as before.

Learning How To Trade Gold Prices Successfully with Technical Analysis

To learn how to XAUUSD successfully using trading analysis it is crucial to understand the three strategies outlined below:

Gold prices will always follow a price trend which can be identified by looking at the price patterns of XAUUSD Gold prices. In financial XAUUSD as well as the other trading instruments the only proven technique to consistently earn profits in the online trading markets is by following a trend. "The Trend is Your Friend" is a popular saying among investors & traders because following market trends when trading chart patterns is the most consistent method of earning profits when trading Gold and other instruments, as a gold trader, never go against the trend.
The market forces of supply and demand for Gold will drive the prices of XAUUSD upward or downward depending on the ruling factors. The demand for XAUUSD may go up when the world economy is performing well and people have more money to spend on luxury items. Technical analysis study will seek to measure these demand supply based on the current patterns of XAUUSD Gold prices & with the help of the different technical indicators. The supply & demand of XAUUSD will be reflected in the price action - therefore by simply looking at the price moves the online traders can forecast and predict what direction the price of Gold is likely to head towards. Traders can also use an additional trading indicator such as the MA moving average, the RSI or support & resistance zones trading indicators to help them determine the next likely direction of the Gold price charts.
The market not only displays the history of the past prices, but will also follow the market trend that was in place until its direction reverses. Traders can use indicators such as the moving averages MAs, Bollinger bands or trend-lines trading analysis tools & indicators to help them determine ruling trend direction.

On the other hand, when there is no direction, when there is no trend & the market begins to move in a sideways oscillating manner - the market is said to be consolidating. When the market begins to consolidate, traders should wait until the market stops consolidating as during this time there will be no trend to trade & prices will keep oscillating in one point without heading in any particular direction.

Once the consolidation stops prices will begin moving in one or the other direction & new market trends will be formed and traders can begin placing trades in the direction of the newly formed trend.

Get More Lessons and Topics:

Trade Forex Trading