How to Use Support & Resistance to Trade XAUUSD

In the above previous lesson trades example we have looked at support & resistance zones that were not broken. These levels held because they were strong enough.

However, sometimes support & resistances levels are not strong enough to stop movement of the price heading in a particular direction. When price moves past these support and resistance points we say these levels have been broken. That's why we always use a stop loss when trading these levels, just in case they do not hold.

But what happens when these levels are broken, well the levels change one to the other, for examples

When a support is broken it becomes a resistance

When a resistance is broken it becomes a support

Using charts, the example below show an illustration of what happens when these levels break:

Support is broken it becomes a resistance

In the example shown below, the support that had been tested two times couldn't hold the third time, the sellers were able to push the price down past this level.

However, the price bounced back up again, but this time the price couldn't go up beyond this line. The price was there after quickly pushed down by the sellers. This was because the line that was a support had now turned in to a resistance.

In xauusd trading when a support is taken out, the stop loss orders placed below that level are also taken out, thus reducing the momentum that the buyers had. This give sellers an opportunity to short sell the gold & place their stops just above this level which now turns into a resistance level.

How Do I Trade Support Resistance Levels on Charts?

Resistance is broken it becomes a support

In the example shown below using the chart, the resistance zone that had been tested two times couldn't hold the third time, the bulls were able to push the price up past this level.

When the price tried to go down again it couldn't move lower than this level. The price was there after quickly pushed further up-ward by the buyers. This was because the line that was a resistance had now turned into a support. This is what happens in xauusd, when a resistance zone is breached it turn in to a support zone.

How to Trade Support & Resistance Areas on Charts - Charts Support & Resistance Areas

Traders who had closed their short sell trades will now open long trades and place their stop loss orders just below this level.

Major and Minor Resistance Areas

In xauusd charts the resistance & support zones formed are either major resistance/support points or minor resistance/support points.

Major Resistance/Support levels

In Major Resistance/Support levels price will stay at this level for some time, either the price will consolidate at this point or form a rectangle pattern when the price reaches this point. This price level will be tested several times before it is either broken or it holds and price doesn't get to move past this resistance/support area.

The above examples are good examples of major Resistance & Support Areas.

Minor Resistance/Support levels

In minor resistance and support points the price will form these points quickly in the short-term & then quickly move past these resistance regions & support regions.

Upward XAUUSD Trading Trend: The pattern of this minor resistance and support points will form a sequence of areas whose general direction is upwards. How Do I Trade Support and Resistance Levels on Charts? - Charts Support Resistance Areas

Upward Trend Series of Support and Resistance

Downwards Trend: The pattern of this minor resistance & support points will form a sequence of areas whose general direction is downwards.