Gold Spot / U.S. DollarEducation
How to Identify Significant Liquidity Zone in Gold Trading
A liquidity zone is a specific area on a price chart where the market orders concentrate.
In this article, I will teach you how to identify the most significant liquidity zones on Gold chart beyond historical levels.
Liquidity Zones
First, in brief, let's discuss where liquidity concentrates.
Market liquidity concentrates on:
1. Psychological levels
Above, you can see a clear concentration of liquidity around a 2500 psychological level on Gold price chart.
2. Fibonacci levels
In the example above, we can see how 382 retracement of a major bullish impulse attracts market liquidity on Gold XAUUSD daily time frame.
3. Horizontal support and resistance levels and trend lines.
In that case, an area based on a classic support/resistance level was a clear source of market liquidity on Gold.
Significant Liquidity Zone
A significant liquidity zone will be the area where psychological levels, Fibonacci levels, horizontal support and resistance levels and trend lines match.
Please, note that such an area may combine the indicators, or any other technical tools.
Such zones can be easily found even beyond the historic levels.
Look at a price chart on Gold on a daily.
Though the market has just updated the ATH, we can spot the next potentially significant liquidity zone with technical analysis.
We see a perfect intersection of a rising trend line, 2600 psychological level based on round numbers and a Fibonacci extension confluence of 2 recent bullish impulses.
These technical tools will compose a significant liquidity zone.
The idea is that Gold was rallying up because of the excess of demand on the market. We will assume that selling orders will be placed within that liquidity zone and the excess of demand will be absorbed by the supply.
It will make the price AT LEAST stop growing and potentially will trigger a correctional movement.
Learn to recognize such liquidity zones, it will help you a lot in predicting Gold price movements.
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