Trading Gold With Support and Resistance Areas

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

However, sometimes support & resistance zones aren't strong enough to stop the movement of trading prices from heading in a certain direction. When the prices move past the support and resistance zones we say that these levels have been broken. This is why traders use stop losses when trading these 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 levels?

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

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

These concepts are explained using the examples 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 this level.

How to Trade Gold Using Support and Resistance Levels - Gold Trading Support and 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 stop losses placed below that level are also taken out thus reducing the overall momentum 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 has now 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 traders who will have opened sell trades will place their stop losses a few pips above this level.

Resistance Area is Broken - Resistance Area becomes Support Area

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

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

Resistance Area is Broken - Resistance Area Becomes Support Area

When the price of gold broke the resistance zone & moved above this level after some 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 touching 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 trades 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 examples 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 & were not broken.

Minor Resistance and Support Areas

Minor resistance/support zones are price points where 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.

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