In this short article, you will learn how to find powerful key levels on a Gold XAUUSD chart.
I will explain to you what is a key level, how to apply it in trading.
We will discuss key levels and different time frames, valid and invalid key levels. I will share with you a lot of useful trading tips.
What is Key Level in Gold Trading?
First, let's start with a definition of a key level.
Key level is a single important historic price level on the chart,
from where a significant price movement initiated.
Usually, key levels are based on the edges of candlestick wicks.
Look at Gold chart on a 4H time frame.
I underlined a key level. You can see how strong was a bullish reaction to that. The price tested that level, bounced up and formed a long wick.
Resistance Levels in Gold Trading
Key levels that are above current prices will be called resistances.
We will assume that sellers are placing their selling orders there.
Above is the example of a key resistance on Gold on an hourly time frame.
The price tested 2479 level, dropped rapidly and formed a long wick.
From a key resistance level, a bearish movement is expected.
Support Levels in Gold Trading
Key levels that are below current prices will be called supports.
We will assume that buyers are placing their buying orders there.
That is the example of a key support level on Gold chart on a daily.
From a key support level a bullish movement is expected.
Support & Resistance Clusters in Gold Trading
Key levels that are lying close to each other will compose support and resistance clusters.
Look at 2 key support levels on Gold on a 4H time frame.
These 2 levels are lying very close to each other and compose a support cluster.
3 key resistances above will compose a resistance cluster on Gold on a daily time frame, because these levels lie close to each other.
Key Levels Breakouts in Gold Trading
With time, the market tends to break key levels.
If the price violated a key support level and closes below that, it turns into a resistance level.
Look at a breakout of key support on an hourly time frame on Gold chart.
After a candle close below that, the broken key level turned into resistance.
If the price violates a key resistance level and closes above that, it turns into a support level.
Above is a recently broken horizontal resistance on Gold on a 4H time frame. After a breakout, that key level turned into support.
Invalid Key Levels in Gold Trading
Key levels tend to lose their significance with time.
Key level that is broken by the buyers and then by the sellers or vice versa loses the status of a key level.
The underlined level was a significant resistance in the past.
However, the market stopped respecting this level and it lost its importance.
Key Levels and Multiple Time Frames in Gold Trading
Remember that you can find key levels on any time frame.
But key levels are not equal in their significance.
Key levels that are spotted on higher time frames will be stronger than key levels that are spotted on lower time frames.
On the chart on the left, I underlined key support and resistance levels on a daily time frame on Gold.
While on the right, I market key support and resistance levels on a 4H time frame.
Daily structures will be considered to be more significant structures.
Hence, the market reaction to such structures tend to be stronger.
Advantages of Key Levels in Gold Trading
In comparison to support and resistance areas,
key levels provide the safest points to look for a trading opportunity from.
Once you spotted a confirmation after a test of a key level,
simply set your stop loss below a support or above a resistance.
You will have a very good reward to risk ratio.
Key levels play a crucial role in technical analysis of Gold.
No matter whether you are day trader, scalper, swing trader or investor, key levels is the first thing that you should always start your analysis from.
