Spot Gold Is Ready To Jump - But Which Way?
by Murray Nickel
August 1st, 2007
It's one thing to let your profits run on a trade, but it's also true that it doesn't make sense to take unjustified risks with profit that's on the table. So when I wrote recently to my trading signal clients that I had concerns with what I saw unfolding in the spot Gold (XAUUSD) market it was to protect the profit on the table. On our open long trade I increased the trailing stop to lock in gains of +1.3% for the remaining portion (the other half of this trade was closed for a +3.8% gain).
Trading the markets is a bit like raising kids: there's times to be relaxed and "hands-off" and there are times to be vigilant and alert to what they're trying to convey to you. So why am I being alert and vigilant with spot Gold right now?
Gold recently delivered a bearish reversal day: a big range day that opened near the high and closed near the low.
Of course these reversal days don't always deliver further rapid declines, and if spot Gold pushes above the high of the reversal day at 677, then that is a very bullish sign. But over the past year Gold has delivered three more of these reversal days, and in each case it made further fast and furious declines within four trading days.
Looking at an hourly chart, XAUUSD looks as though it should push to at least 669 before any decline unfolds (it's currently near 667), so I'm placing a "take profit" exit at 669 as a OCO (one-cancels-the-other) trade with the current stop of 656.81. Both exits will deliver profit, but it's the difference between +1.3% and +3.2% gains, which is worth having if available.
One of those exits will get hit eventually. Then what should we do?
* If XAUUSD pushes beyond 677, it should go all the way to $750 or more. So I'm placing a conditional buy-at-a-stop entry at 677.0. If this is triggered, the initial 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.
Murray Nickel is a mathematician, statistician, and professional trader. He offers a free trial of trading signals for global market indexes and index ETFs, spot Forex, and spot Gold. He also mentors trend traders aiming to build consistent success at trading global markets. You can get a unique content version of this article.
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