Trading Gold with Support & Resistance Zones

In the last lesson on support and resistance, we saw levels that did not break. Those spots held firm because they were strong.

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 & resistance levels we say that these technical levels have been broken. This is why traders use stop loss orders when trading these technical 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 technical levels?

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

When a support level is breached, it transitions into a resistance zone: conversely, a broken resistance level converts to a support zone.

These concepts are presented using the examples displayed:

Support Level is Broken - Support Zone becomes Resistance Level

In the depicted diagram, the support level was successfully tested twice: however, it proved insufficient upon the third test, allowing sellers to push the XAUUSD prices below this technical barrier.

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

Support Zone Broken - Becomes Resistance Level

Gold prices rose again but stopped short of the old support. That spot had flipped to resistance.

When trading XAUUSD, a breach below a support level results in the triggering of stop-loss orders placed beneath that area, thereby diminishing the momentum previously exerted by buyers. This eventuality opens an avenue for sellers to take short positions on XAUUSD, placing their stop-loss orders just above that technical line, which has now effectively transformed into a resistance zone.

If this resistance level stays strong and prices don't go above it, then the market feels negative and prices will likely keep going down. In general, online traders who have opened trades to sell will set their stop loss orders a few pips above this technical level.

Resistance Level is Broken - Resistance Zone becomes Support Level

In the illustrative example shown beneath, the resistance boundary was tested on two separate occasions but failed to hold during the third attempt - the buying participants (bulls) successfully drove the price past this technical threshold, consequently breaking through the resistance zone.

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

Resistance Zone is Broken - Resistance Level Becomes Support Zone

XAUUSD price broke past resistance and climbed higher. Later, it dipped but held above that level. The old resistance now served as support. Buyers pushed prices up fast after the touch. In gold trades, broken resistance often flips to support.

A key reason why gold prices stayed high is because short sellers had placed stop-loss orders above resistance areas. When these orders were hit, seller momentum decreased, preventing further declines in gold prices.

Major Resistance Levels and Minor Resistance Zone

When you're looking at gold charts, the support and resistance levels can be major or minor. These zones help you find where price might bounce or stall.

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 images above show key support and resistance levels. In them, the levels broke. In the last lesson, those major levels held firm and did not break.

Minor Resistance & Support Levels

Small areas of resistance or support are price levels where the price will create these short-term minor areas. Since these are minor levels, the price will quickly go past these areas.

Upwards Trend

You get a set of small support or resistance levels. They point upward in general.

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