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August 1st, 2007 Two days ago I wrote in my update to trading signal subscribers that I didn't like what I saw unfolding in spot Gold (XAUUSD) and increased the trailing stop to 656.81 to lock in a +1.3% gain on this portion of the trade (the other half was closed for a +3.8% gain). Here I'll explain why I'm a bit nervous and outline a trading strategy for managing risk at this time. Spot Gold recently posted a big range day that opened near the high and closed near the low. Over the past year Gold has delivered another three of these reversal days. What happened in those instances? Well, it Was Not Nice! Further fast frantic declines within four trading days. Of course these reversal days don't always deliver further rapid declines, and if XAUUSD pushes above the high of the reversal day at 677, then that is a very bullish sign. The spot Gold market is currently trading near 667.0. I have exits above and below, at 669.0 and 656.81. Both exits will deliver profit, but the 669.0 exit I've just added is the difference between +3.2% and +1.3% gains, which is worth having if available. On an hourly chart of XAUUSD it looks like it should push to at least 669, but no market comes with guarantees included. Once one of these exits gets triggered, what is the trading strategy? * If spot Gold continues up and pushes beyond 677, it should go all the way to $750 or more. So I'm placing a conditional stop buy entry (buy-at-a-stop) at 677.0. If this is entered the stop-loss is 656.81. * If spot Gold heads south from here then I want to be short at 640.0 (sell-at-a-stop), with an initial stop-loss at 676.0. This would mean spot Gold is entering its wave 3 decline (in Elliott wave terms) and should eventually continue down to under $540.0 before any sustained rally kicks in. * So either way, there should still be a good move to trade and the opportunity should unfold very soon - the only unknown is "which way?" If you've read my recent article on the global spread of risk aversion, you'll know that I think Gold is heading north. But the beauty of this strategy is that I don't have to be right! I don't really care what the market serves up as I can make further profits either way. View the complete article, including a chart of spot Gold, showing the reversal days, and a link to the piece on global risk aversion, at www.TrendSensor.com/MarketBrief/ DISCLOSURE: Murray Nickel holds a long position in spot Gold (XAUUSD), opened at $648.40.
Article Source: http://www.financemanual.com
Murray Nickel is a mathematician, statistician, and professional trader. He offers a free trial of trading signals for market indexes and index ETFs, spot Forex, and spot Gold. He also mentors trend traders aiming to build consistent success at trading global markets. This article is available as a unique content article with free reprint rights.
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