How to Use Support & Resistance to Trade Gold

In the above previous course 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 aren't strong enough to stop movement of the price heading in a certain direction. When price moves past these support & resistance points we say these levels have been broken. That's why we always use a stoploss order 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 example

• 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 depicted and explained below, the support that had been tested two times could not 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 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 gold & place their stops just above this level which now turns into a resistance level.

Resistance is broken it becomes a support

In the example illustrated and explained below using the chart, the resistance zone that had been tested two times could not 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 upwards by the buyers. This was because the line that was a resistance had now turned into a support. This is what happens in gold trading, when a resistance zone is breached it turn in to a support level.

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

Major & Minor Resistance Areas

In charts the resistance and support levels 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 level will be tested several times before it is either broken or it holds and price doesn't get to go past this resistance support area.

The above example are good examples of major Resistance & Support Zones.

Minor Resistance/Support levels

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

Up-wards XAUUSD Trading Trend: The pattern of this minor resistance and support points will form a sequence of areas whose general direction is upwards.

Up-wards Gold Trend Series of Support and Resistance

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

Downwards Gold Trend Series of Support and Resistance

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