Support and Resistance Zones on Charts
This is one of the most widely used concepts in xauusd it refers to levels on a chart that tend to act as barriers which prevent the price of an asset from getting pushed beyond a certain point in a particular direction.
Support
This level stops the price of an asset from getting pushed downward and hence it's regarded as a floor because it prevents the market from going downwards past a certain point.
Example:
On the example depicted & explained below you can see that price moved downward until it hit a support
Once the price hit this level it slightly bounced back upward, then resumed going down until it hit support again.
The process of hitting a level & bouncing back is referred to as testing the support.
The more times a support is tested & the market bounces upwards the stronger it's - the trading example depicted and explained below this level was tested three times without breaking. Finally the market trend reversed and started moving in the opposite market trend direction.
Once this level has been decided traders use it to place their orders to buy gold at the same time putting a stop loss a few pips below it.
In the trading above example the market didn't move below this area. It's an area where the price can't break lower.
These regions form good points where the trend in a downward trend is likely to reverse & get support and begin heading and moving upward.
The demand to buy gold at this point will be greater & therefore providing a good point to begin a buy 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 trades.
This is another reason why the trend is likely to reverse at this particular level because once the sellers close-out their sell positions then energy of the downward trend reduces and a consolidation will happen after which the trend direction is likely to reverse.
Resistance
This level stops the price of an asset from getting pushed upwards these levels are therefore regarded as a ceiling because these technical levels prevent and prohibit the market from heading upward
Example:
On the example depicted & explained below you can see that price moved up until it hit a resistance.
Once the price hit this level it retraced slightly then resumed going up until it hit the resistance level again.
The resistance holds and is tried & tested for 5 times without breaking.
The more times a resistance zone is tested the stronger the it is.
Once this level has been decided traders put their orders to sell at this level & at the same time putting a stop loss a few pips above it.
In the trading above example the market did not move above this level. This region shows an area where the price can not break above.
These levels form good points where a price in an upwards trend is likely to reverse after some resistance & start moving downwards in the opposite market direction.
This shows that the demand to sell gold at this region will be greater & therefore providing a good point to begin a sell trade, while placing stops some pips just above this level.
This resistance zone also is used by buyers(bulls) as a target where to set their takeprofits for their bullish trade positions. T
His is another reason why the trend is likely to reverse at this particular level because once the buyers buyers close-out their sell their buy trade positions then strength of the upwards trend reduces and a consolidation will happen after which the direction is likely to reverse and begin moving down.
Get More Topics and Tutorials:
- Explanation of How to Understand Double Bottoms Chart Pattern in Trade
- How Do You Trade Head and Shoulders Pattern?
- How Do You Trade Ehlers Fisher Transform Indicator?
- How to Build Indicator Trading Strategy
- Regulated MetaTrader XAUUSD Broker Data
- What's 1:100 XAUUSD Leverage?
- How Do You Use Trading Gold Platform MetaTrader 5 Platform?
- How to Use MT4 Software Navigator Panel Window Course
- Gold Charts Analysis Gold Definition
- How Do You Trade MetaTrader 5 Upwards Channel on MetaTrader 5 Platform?
