Trading Gold With Support & Resistance Areas

In the last lesson about support and resistance, we talked about areas that didn't break, meaning the price didn't go past them because they were strong.

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 critical question is what occurs when these areas are breached, and prices clear these technical barriers.

The explanation resides in the fact that when these established technical boundaries are breached, their functional roles invert - this effectively means that:

Once a zone that previously provided support is breached, it transforms into a resistance zone: conversely, when a resistance zone is overcome, it starts acting as support.

These concepts are explained using the examples displayed:

Support Area is Broken - Support Area becomes Resistance Area

In the sample below, support held twice. It broke on the third try. Sellers drove XAUUSD prices right through that line.

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

Support Area Broken - Becomes Resistance Area

Gold prices did rise again, but this time the price could not get past a certain level that used to be a support zone. This happened because the support zone had now become 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.

Provided that this resistance level remains intact and prices do not exceed this new resistance zone, the market sentiment will be bearish, indicating that market prices are likely to continue their downward trajectory. Consequently, online traders who have initiated sell trades will typically position their stop losses a few pips above this technical threshold.

Resistance Area is Broken - Resistance Area becomes Support Area

In the illustration detailed underneath, the designated resistance zone was challenged twice without success, though it failed to contain the price on the third attempt - buyers managed to propel the price beyond this technical boundary, thereby breaching the resistance area.

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 factor contributing to the stability of Gold prices is that sellers who initiated their short trade transactions had their stop losses, which were positioned above the resistance zones, triggered, thereby diminishing the selling momentum.

Major Resistance Levels and Minor Resistance Area

When trading using Gold charts, the areas of resistance and support that are created are either major or minor areas of resistance and support.

Major Resistance & Support Areas

When the price hits important areas of resistance or support, it tends to stay there for a while, and it might either stabilize or create a rectangle shape. This area will be tested many times before the price either breaks through it or stays within it and cannot move past this significant resistance or support area.

The examples above show key support and resistance zones well. In those cases, the zones broke. But in the last lesson, they held firm without breaking.

Minor Resistance and Support Areas

Minor resistance/support areas are price levels where the price will create these short-term minor resistance/support areas. Because these are minor resistance/support areas, the price will quickly go past these points.

Upward Trend

You get a set of small support or resistance levels. They point upward in general.

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