How to Use Support and Resistance to Trade XAUUSD

In the above previous lesson trades example we have looked at support & resistance levels that were not broken. These points held because they were strong enough.

However, sometimes support and resistances levels are not strong enough to stop movement of the gold trading price moving in a certain direction. When gold trading price moves past these support and resistance points we say that these levels have been broken. That's why we always use a stop loss 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 examples

• When a support is broken it becomes a resistance

• When a resistance is broken it becomes a support

Using trading charts, the example below show an illustration of what happens when these levels break:

Support is broken it becomes a resistance

In the xauusd example shown below, the support that had been tested two times could not hold the third time, the sellers were able to push the gold price down past this level.

However, the gold trading price bounced back up again, but this time the gold trading price could not go up beyond this line. The gold trading price was there after quickly pushed down by the sellers. This was because the line that was a support had now turned into a resistance.

In xauusd trading when a support is taken out, the stop losses placed below that level are also taken out, thus reducing the momentum that the buyers had. This give sellers an opportunity to short sell the gold & place their stops just above this level which now turns into a resistance level.

Resistance is broken it becomes a support

In the xauusd example shown below using the gold chart, the resistance level that had been tested two times could not hold the third time, the bulls were able to push the gold price up past this level.

When the gold trading price tried to go down again it could not go lower than this level. The gold trading 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 xauusd trading, when a resistance level is broken it turn into a support level.

Traders who had closed their short sell gold trades will now open long trades & place their stop losses just below this level.

Major and Minor Resistance Levels

In xauusd charts the resistance & support levels formed are either major resistance/support points or minor resistance/support points.

Major Resistance/Support levels

In Major Resistance/Support levels gold trading price will stay at this level for some time, either the gold trading price will consolidate at this point or form a rectangle chart pattern when price gets to this point. This level will be tested several times before it is either broken or it holds and gold price doesn't get to move past this resistance/support level.

The above examples are good examples of major Resistance & Support Levels.

Minor Resistance/Support levels

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

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

Upwards XAUUSD Trend Series of Support and Resistance

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

Downwards XAUUSD Trend Series of Support and Resistance