Trading Gold with Support and Resistance Zones

In the previous tutorial on support & resistance levels we looked at support and resistance areas that were not broken - these levels held because they were strong enough.

However, sometimes support & resistance levels are not strong enough to stop the movement of prices from heading in a certain direction. When the prices move past the support and resistance levels we say that these levels have been broken. This is why traders use stop loss orders when trading these levels, just in case these levels don't hold & price moves past them.

The question is what happens when these zones are broken and prices move past these levels?

The answer is that when these levels are broken they then change from one to the other - what this means is that:

When a support area is broken it becomes a resistance level - When a resistance level is broken it becomes a support area

These concepts are explained using the examples below:

Support Level is Broken - Support Zone becomes Resistance Level

In the example below the support level was tested 2 times and this level couldn't hold the third time it was tested & sellers were able to push the prices of XAUUSD past this level.

How to Trade Gold using Support and Resistance Levels - How to Trade XAUUSD Support Levels & Resistance Levels

Support Zone Broken - Becomes Resistance Level

However, the prices of Gold also bounced back up again, but this time the price could not go above this point which was previously a support level - this is because the level which was previously a support level had now turned in to a resistance area.

In trading XAUUSD, when a support level is taken out, the stop losses placed below that level are also taken out thus reducing the overall momentum that the previous buyers had. This gives an opportunity to sellers to short XAUUSD & then place their stop loss orders just above this level that has now turned in to a resistance area.

As long as this resistance level holds & prices do not move above this new resistance level then the market sentiment is bearish & the market prices are likely to continue moving downwards. All in all the traders who will have opened sell trades will place their stop loss orders a couple of pips above this level.

Resistance Level is Broken - Resistance Zone becomes Support Level

In the example below the resistance level shown was tested two times but couldn't hold the third time - the buyers were able to push price past this level, thereby breaking the resistance area.

Trading Gold using Support and Resistance Levels - How to Trade Gold Support Levels & Resistance Levels

Resistance Zone is Broken - Resistance Level Becomes Support Zone

When the price of xauusd broke the resistance level and moved above this level after some time the prices tried to move lower again but could not go lower than this level - this is because the resistance level had now turned in to a support area. The prices were quickly pushed further upwards by the buyers after touching this new support level. This is what happens in Gold trading, when a resistance zone is breached it then turns into a support level.

Another reason why the prices of Gold did not move down again is because the sellers who had opened their short trades all their stop loss orders that were placed above this resistance areas were hit therefore reducing the momentum of the sellers.

Major Resistance Levels and Minor Resistance Zone

In trading with Gold charts, the resistance and support levels formed are either major resistance/support areas or minor resistance/support levels.

Major Resistance & Support Zones

In major resistance/support levels price will stay at these levels for some time and price may either consolidate or form a rectangle setup when the prices get to this point. This level will be tested several times before it is either broken or holds and price doesn't get to move past this major resistance/support level.

The above examples are good examples of major resistance/support levels. In the above examples the major resistance/support areas were broken, in the previous tutorial, the major resistance/support levels held & were not broken.

Minor Resistance and Support Levels

Minor resistance/support areas are price points where price will form these shortterm minor resistance/support areas. Since these are minor resistance/support levels the price will quickly move past these points.

Upwards Trend

A series of minor resistance/support levels whose general direction is upward will be formed.

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