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Learn with ETMarkets: How to Find Support, Resistance While Trading MCX Gold and Silver?

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Learn with ETMarkets: How to Find Support, Resistance While Trading MCX Gold and Silver?

Support and resistance levels play a central role in guiding trading decisions for MCX gold and silver contracts. These levels serve as key reference points, providing insight into potential price movements and helping traders make informed choices. Here we examine the importance of support and resistance levels and explore effective strategies for incorporating them into trading decisions.

1.Horizontal support and resistance

Horizontal support and resistance levels are established based on previous price action, where the price has historically struggled to move below (support) or above (resistance) a certain level. Traders can identify these levels by observing price movements and identifying areas where prices have reversed direction repeatedly.

Example:

Support: At Rs. 9,999 to 70,000, MCX Gold price has consistently seen buying interest, leading to reversals in price direction.

Resistance: Conversely, at Rs.76,000, MCX Silver faced selling pressure, leading to price reversals.

2.Trend line support and resistance

Trendline support and resistance levels are plotted by connecting consecutive lows (for support) or highs (for resistance) on a price chart. These trendlines provide valuable information about the prevailing market trend and potential areas for price reversal.

Example:

Support Trendline: By connecting multiple lows, a trendline can be drawn, indicating the overall upward price trend of MCX Silver.

Resistance Trendline: Conversely, connecting consecutive highs establishes a trendline, highlighting areas where MCX gold prices have faced selling pressure.

3. Use previous resistance as new support and vice versa

An effective strategy is to use previous resistance levels as new support once price breaks through them, and vice versa. This phenomenon, known as “role reversal,” occurs when a resistance level is breached, leading to a change in market sentiment.

Example:

Previous resistance becomes support: MCX Silver prices exceed and hold above Rs. 9,999. The resistance level of 70,000, after March 2022, has since then acted in the support zone. Traders can expect this level to act as support in future price movements.

Conclusion

Incorporating support and resistance levels into trading strategies for MCX Gold and Silver contracts gives traders valuable information on potential price movements and price reversal zones. By understanding the importance of horizontal support and resistance levels and trend lines and using the concepts of role reversal, traders can make informed decisions and navigate the precious metals market with confidence. As with any trading strategy, combining technical analysis with risk management principles and adaptability to changing market conditions is essential for lasting success.

(The author is vice president of commodities and currencies research at LKP Securities)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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