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.

At times, support and resistance levels may not be robust enough to deter a price's movement in a specific direction. When the price surpasses these levels, it is said that these technical points have been breached. Consequently, traders often employ stop-loss orders as a precaution if these levels fail to hold.

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

When a support level is broken it becomes a resistance

When a resistance level is broken it becomes a support

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

Support is broken it becomes a resistance

In the exemplification shown below, the support that had been tested 2 times could not hold the third time, the sellers were able to push price downward past this level.

Nevertheless, the price experienced an upward rebound, but this time it failed to surpass the established line. Subsequently, sellers (bears) exerted downward pressure, quickly pushing the price lower. This occurred because the line that previously functioned as support had converted into resistance.

In xauusd trading when a support is taken out, the stop loss orders placed below that point are also taken out, thus reducing the energy that the buyers(bulls) 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 level is broken it becomes a support

In the example using the chart below, the resistance level tested twice could not hold the third time: buyers pushed prices past that level.

During subsequent attempts for prices to decline, this technical threshold hindered any further drop. Buyers quickly drove the price up from that level. This happened because the previous resistance level had shifted to become a support area. Such changes are common in XAUUSD: once a resistance level is surpassed, it often turns into a support zone.

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

Traders who had closed their short sell trade positions will now open long trade positions & place and set their stop losses just below this technical level.

Major and Minor Resistance Areas

In XAUUSD charts, support and resistance zones are either strong levels or minor ones.

Major Resistance/Support levels

At important areas of Resistance/Support, prices will stay at this level for a while, and the price will either stay steady or form a rectangle shape when the price gets to this point. This price will be tested many times before it breaks through or stays put, stopping the price from moving past this area.

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

Minor Resistance/Support levels

In small areas of resistance and support, the price will quickly create these points in a short time and then quickly go past them and the areas of support.

Upwards 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 xauusd Trading 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 downward.