Support and Resistance Levels 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 financial instruments such as Forex currencies, stock indices and commodities.
Support and resistance levels that form on the Gold price chart tend to act as barriers that prevent the price of Gold getting pushed beyond a certain point in a particular direction.
As the name suggests this level supports price against moving lower beyond a particular price.
A support level prevents the price of Gold 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.
On the example above the price moved down until it hit a support level. Once price hits this level it slightly bounced back up and then resumed going down again until it hit the support level and bounced up again.
This process of hitting the support level and then bouncing back is called testing the support.
The more times a support level is tested the stronger it is, in the example above the support level was tested 3 times without breaking after which the market downward trend finally reversed and started moving in the opposite direction.
Once this level has been determined on the Gold trading chart, then traders use it to place their buy orders and at the same time put a stop loss order just a few pips below this 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.
On the example shown above the price moved up until it hit a resistance level. Once the price hit this level it retraced and then resumed moving up until it hit the resistance level again.
The resistance level was tested 5 times without breaking, the more times a resistance level is tested without breaking, the stronger it is.
Once this resistance level has been determined, traders will use this level to place their sell orders at this level and at the same time put a stop loss order a few pips above this resistance level.