Trading Gold With Support & Resistance Areas

In the previous tutorial on support & resistance zones we looked at support & resistance zones that weren't broken - these technical levels held because they were strong enough.

However, sometimes support & resistance zones aren't strong enough to stop the movement of prices from heading in a certain direction. When the prices move past the support & resistance zones we say that these technical levels have been broken. This is why traders use stoploss orders when trading these technical levels, just in case these levels do not hold and price moves past them.

The question is what happens when these areas are broken & prices move past these technical levels?

The answer is that when these technical levels are broken they then change from one to the other - what it means is that:

When a support zone is broken it becomes a resistance zone - When a resistance zone is broken it turns into a support zone

These concepts are explained using the examples displayed below:

Support Area is Broken - Support Area becomes Resistance Area

In the example below the support level was tested 2 times and this level could not hold the third time it was tested & sellers were able to push the prices of XAUUSD past/beyond this technical level.

How to Trade Gold Using Support & Resistance Levels - Gold Trading Support & Resistance Levels Tutorial

Support Area Broken - Becomes Resistance Area

However, the prices of Gold also bounced back up again, but this time the price couldn't go above this point which was previously a support zone - this is because the line that was previously a support zone had now changed in to a resistance zone.

In trading XAUUSD, when a support zone is taken out, the stoploss orders placed below that point are also taken out thus decreasing the overall energy that the previous buyers had. This gives an opportunity to sellers to short XAUUSD and then place their stop losses just above this level that now has turned in to a resistance zone.

As long as this resistance level holds and prices don't move above this new resistance zone then the market sentiment is bearish and the market prices are likely to continue heading downwards. All in all the online traders who will have opened sell trades will place their stop losses a few pips above this technical level.

Resistance Area is Broken - Resistance Area becomes Support Area

In the example shown below the resistance zone shown was tested two times but couldn't hold the third time - the buyers were able to push the price past this technical level, therefore breaking the resistance zone.

How to Trade XAUUSD With Support & Resistance Levels - XAUUSD Support & Resistance Levels Technical Analysis

Resistance Area is Broken - Resistance Area Becomes Support Area

When the price of gold broke the resistance zone & went above this technical level after a period of time the prices tried to move lower again but couldn't go lower than this level - this is because the resistance zone had now turned in to a support zone. The prices were quickly pushed further upwards by the buyers after testing this new support zone. This is what happens in Gold trading, when a resistance zone is broken it then turns into a support zone.

Another reason why the prices of Gold did not move down again is because the sellers who had opened their short trade transactions all their stop losses that were placed above this resistance zones were hit hence reducing the momentum of the sellers.

Major Resistance Levels and Minor Resistance Area

In trading with Gold charts, the resistance and support zones formed are either major resistance/support zones or minor resistance/support zones.

Major Resistance & Support Areas

In major resistance/support levels price will stay at these levels for some time and price may either consolidate or form a rectangle pattern when the prices get to this point. This level will be tested several times before it is either broken or holds and price doesn't get to move past this major resistance/support zone.

The above examples are good illustrations of major resistance/support zones. In the above examples the major resistance/support zones were broken, in the previous tutorial, the major resistance/support levels held & weren't broken.

Minor Resistance and Support Areas

Minor resistance/support zones are price points where the price will form these short-term minor resistance/support zones. Since these are minor resistance/support zones the price will quickly move past these points.

Upward Trend

A series of minor resistance/support levels whose general direction is upward will be formed.

Study More Tutorials and Guides & Lessons:

Trade Forex Trading