Gold’s Likely Direction And How To Profit In The Days Ahead

Gold traders got surprise as gold and silver both spiked Monday. Here’s a simple strategy for how to trade gold in the coming days, for intraday and short term gold traders.

  1. Gold and silver spiked Monday. We look briefly at the popular explanations.
  2. Here’s what we believe will be the likely direction in the coming days
  3. We present an idea on how to profit for short term and intraday traders

 

Gold and silver are back in focus after a sharp, unexpected, rally midday GMT Monday.

  • From an intraday low of ~ $1178 Gold spiked $26 or 2.2% to ~$1204.
  • As usual, silver moved faster, up 4.9% from its intraday low.

There are no obvious fundamental drivers. The USD decline over the same period has been minor, nor has there been a sudden surge in anxiety about Greece, or anything else.

Thus the consensus has been that this that this was a “technical move,” (read: “we don’t really know”). More on that below for those interested.

Throughout the Asian session, both gold and silver have held their gains with only minor pullbacks heading into the close.

So how do we play gold in the coming days (we’ll hit silver tomorrow – stay tuned)?

 

SUMMARY: THE LIKELY WAY TO PROFIT – THE SHORT VERSION

Typically, after a huge move, assets tend to “take a rest.” They pull back a bit and then trade in a horizontal trading range as buyers and sellers take time to digest the move.

Both our momentum indicators and the horizontal range-bound price action in our daily, four-hour and one-hour charts suggest gold will remain in a flat trading range for the coming day at least. We profit by buying gold low near support levels and selling it near the top at resistance levels, while always setting stop losses to minimize losses in case we’re wrong.

Here’s a simple trade idea for gold day traders, based on our examination of daily, 4-hour and 1-hour charts. We’ll only show the 4 hour chart, the only one you really need to see.

For intraday gold traders, the 4 hour chart provides a good “big picture” of likely major support and resistance for the coming 24 hours, barring some big new market driver.

Per the below 4 hour gold chart:

  • Likely strong support for today: The 1198.66 area (bottom green horizontal line)
  • Likely strong resistance for today: the 1202.59 area (top red horizontal line)

 

Gold 4-Hour Chart April 27, 2015. You can ignore the various technical indicators not mentioned for purposes of the above analysis.

ScreenHunter_02 Apr. 28 09.13

 

02 Apr. 28 09.13.jpg

 

How to Profit

  1. If gold gets in the 1198.66 area then buy gold, with sell target around 1202.59.
    1. Set your stop loss close enough below 1198.66 so that you don’t lose more than you’re comfortable losing.
    2. Typically we try to limit losses to no more than 3% of our trading capital as we advise in Chapter 5 of our book, The Sensible Guide To Forex (winner of FXStreet.com’s Best Forex Book Award).
  2. If gold reaches the 1202.59 area, then sell gold (that is, take a short position) with a buy target (to take profits) around 1198.57.
    1. Set your stop loss close enough above 1202.59 so that if gold goes higher you limit your loss.
    2. Preferably to no more than 3% of your trading capital.

Note: the middle support (1199.85) and resistance (1201.18) lines are useful for those on very short time frames (1-5 minute charts). Breaks below them also help alert us to possible breakouts up or down.

Questions? Contact us at fxglobe.com or call one of our trained trading professionals to assist you. We’re here to help you. Your success is ours!

Get more great trading ideas. To be added to Cliff’s email distribution list, just click here, and leave your name, email address, and request to be on the mailing list for alerts of future posts.

 

DISCLOSURE/DISCLAIMER: The above represents my personal outlook, and is not represented as any guarantee of what will happen by me, thesensibleguidetoforex.com, or fxglobe.com. Trading involves risk, even for those familiar with sound risk management techniques such as those presented in Chapter 5 of Cliff’s book, The Sensible Guide To Forex. Final responsibility for all trade decisions rests with the reader.

 

Advertisements