Support and Resistance Levels on XAUUSD Charts

This is one of the most widely used concepts in xauusd trading and it refers to levels on a gold chart that tend to act as barriers that prevent the xauusd price of an asset from getting pushed beyond a certain point in a particular direction.

Support

This level prevents the xauusd price of an asset from getting pushed downwards and therefore it is regarded as the floor because it prevents the xauusd market from moving downwards past a certain point.

Example:

On the xauusd trading example illustrated and explained below you can see that xauusd price moved down until it hit a support

Once xauusd price hit this level it slightly bounced back up, then resumed going down until it hit the support again.

This process of hitting a level and bouncing back is called testing the support.

The more times a support is tested and the xauusd market bounces up the stronger it is - the xauusd trading example illustrated and explained below this level was tested three times without breaking. Finally the xauusd market trend reversed and started moving in the opposite direction.

Once this level has been determined traders use it to place their gold orders to buy gold at the same time putting a stop loss a few pips below it.

In the xauusd trading example above the xauusd market did not move below this area. It is an area where xauusd price cannot break lower.

These regions form good points where xauusd price trend in a downward gold trend is likely to reverse and get support and start moving upwards.

The demand to buy gold at this point will be greater and therefore providing a good point to start a buy gold trade, while placing stops some pips just below.

This support is also use by short gold sellers as a target where to set their take profit for their short sell xauusd trades.

This is another reason why the gold trend is likely to reverse or consolidate at this level because once the sellers close their sell xauusd trades then momentum of the downward gold trend reduces and a consolidation will happen after which the direction is likely to reverse.

Resistance

This level prevents the xauusd price of an asset from getting pushed upwards these levels are therefore regarded as the ceiling because these levels prevent the xauusd market from moving upwards

Example:

On the xauusd trading example illustrated and explained below you can see that xauusd price moved up until it hit a resistance.

Once xauusd price hit this level it retraced slightly the resumed going up until it hit the resistance again.

The resistance holds and is tested five times without breaking.

The more times a resistance is tested the stronger the it is.

Once this level has been determined traders put their gold orders to sell at this level and at the same time putting a stop loss a few pips above it.

In the xauusd trading example above the xauusd market did not move above this area. This region shows an area where xauusd price cannot break above.

These levels form good points where a gold price in an upward gold trend is likely to reverse after some resistance and start moving downwards in the opposite direction.

This shows that the demand to sell gold at this region will be greater and therefore providing a good point to start a sell gold trade, while placing stops some pips just above this level.

This resistance is also used by buyers as a target where to set their take profit for their bullish trades. T

his is another reason why the gold trend is likely to reverse or consolidate at this level because once the buyers close their sell xauusd trades then momentum of the upward gold trend reduces and a consolidation will happen after which the direction is likely to reverse and start moving down.