Support and Resistance Zones in Gold Trading
Support and Resistance levels is one of the most widely used concepts when it comes to trading Gold metal online. Support and resistance levels are also commonly used in trading other trading instruments such as Forex currencies, stock indices and commodities.
Support & resistance levels which form on the XAUUSD price chart tend to act as barriers that prevent the price of Gold getting pushed beyond a certain point in a particular direction.
Support Level
As the name suggests this level supports price against moving lower beyond a particular price.
A support area prevents the market price of XAUUSD from getting pushed downwards beyond this particular level. Therefore, this support level is regarded as a floor for the Gold price as it prevents the market from moving downwards past a certain point.
Support Zone
On the above example the market price moved down until it hit a support area. Once price touches this level it slightly bounced back up and then resumed going down again until it hit the support level & bounced up again.
This process of hitting the support level and then bouncing back is called testing the support.
The greater the times a support area is tested the stronger it is, in the above example the support level was tested 3 times without breaking after which the market downward trend finally reversed and started moving in the opposite trend direction.
Once this level has been determined on the Gold trading chart, then traders use it to place their buy orders & at the same time put a stop loss order just a couple of pips below this level.
Resistance Level
Resistance level is a level that prevents the prices of Gold from getting pushed upwards above a particular level. This level can therefore be regarded as a ceiling for the price because this level prevents the market price from moving upwards beyond this point.
Resistance Zone
On the example illustrated above the market price moved up until it hit a resistance area. Once the price hit this level it retraced and then resumed heading up until it hit the resistance level again.
The resistance area was tested 5 times without breaking, the more times a resistance level is tested without breaking, the stronger it is.
Once this resistance area has been determined, traders will use this level to place their sell orders at this level & at the same time put a stop loss order a few pips above this resistance level.
Study More Tutorials & Topics:
- Chandes Q-Stick XAUUSD Indicator Trading Analysis
- XAU USD Hanging Man Candlestick Trading Analysis
- Introduction to Gold Market Basic Concepts for Beginners
- Candlesticks Charts on Charts Menu on MetaTrader 4 Platform
- How to Trade XAUUSD Trend Channels on MetaTrader 4 Platform
- How Do You Place XAUUSD CCI Indicator in Trade Chart?
- What Does a Gold Leverage of 1 1 Mean?
- How to Trade XAUUSD Charts Using MT4 Gold Platform Software Platform Software
- How to Place Moving Average MA Oscillator XAU USD Indicator on Chart
