What can you do to turn this rise into a potential Gold Mine of trading opportunities?
Written By: Lachlan Elsworth
The Status Quo
Whenever I am asked to write an article, I like to question the status quo and provide every reader with thought provoking content and education. I want to challenge the conventional thinking about trading and wake people up to the real opportunity that is passing by each and every trading day. I then seek to provide significant chart based evidence to support my argument and highlight the true power of this opportunity when it is done the right way
Fear is rising around the globe and Gold is the Barometer. What does this mean for you as a trader and more importantly, how can you make money from it?
In my humble opinion, gold will be hard to pick direction wise over the next three months. There are many competing stories driving it both up and down. Europe is in a very dangerous position, Russia is compounding the issue, ISIS is still a major destabilizing factor and Greece may get kicked out of the Euro when they finally admit that they have no intent of paying back their loans.
For these reasons, and countless others, I think gold’s direction could be both up and down over the next 3 months. Before we get too upset about the ‘uncertainty of not knowing’, I think we need to see the silver lining in this Golden Cloud and actually take advantage of both directions. This can be done in two ways for a savvy and entrepreneurial trader.
The 2 Silver Linings in the Golden Cloud
Firstly, gold being gold, it is likely to go back to its comfort zones, these zones being prices it has been comfortable at before. Gold’s tendency to do this makes it quite a predictable market to trade. Why so predictable? Being a global commodity, with many thousands of active traders, after a while, these traders tend to draw similar conclusions about the market and what it is likely to do. They start to construct similar estimates regarding longer-range targets based on previous price movement. This may seem like a simple concept until we realise that it is the very psychology of these traders that is driving the market anyway!
The ‘comfort zone’ levels can be easily identified, as shown on the chart below (Figure One). Let’s call this the Macro Perspective and seek to use this perspective for potential long-range target setting.
The second major advantage generated by the potential of gold to move both up and down in the Macro Perspective is that it has the ability to move both up and down in the Micro Perspective as well. Why not adopt a bi-directional approach to trading and be prepared to trade gold both up and down in the short term as well? Let’s call this the Micro Perspective and I will explain it in further detail below.
The Macro Perspective
Figure One is a Gold Weekly Chart that shows price movement for the past 12 months. Please note 4 key lines (named Line A to Line D) and the trend arrow. Figure One – Gold Weekly Chart and the Macro Perspective it can give.
- Line A represents the highest weekly close on Gold in the Last 12 Months. The price is 1341.7 per ounce. If gold was to push higher due to a significantly negative event such as Greece Defaulting, this is a wonderful longer term, inside 6 month, target for gold traders.
- Line B represents the highest weekly close in the last 6 months. The price is 1293.3 per ounce and represents a great medium term target for a 3 – 4 month trade. At the time of writing, gold is setting up a very nice buy signal at 1230 per ounce, which may trigger as early as the end of April. If this signal does confirm, this target (1293.3) will be a great trade.
- Line C is the 50% retracement of the most recent 8-week trend (marked with the downward pointing blue arrow). For those who understand my teachings, you will know the power of the 50% Fibonacci and the fact that it is one of the most powerful self-fulfilling prophecies in trading. In this case, the Gold market stopped just shy of ‘the 50” (line C) prior to its current retracement.
- Line D is gold’s “Bounce Point” and the trigger for the last 4 week up trend that you can see on the chart. Gold could not hold below 1142.8 per ounce, meaning the buyers responded by taking command of the market. The buyers are currently weak, which brings up 2 messages and two potential trades.
- If gold can close above Line C on this weekly chart, Gold will be encouraged to go up and there will be a lot of buying. A great buy entry point will be the top of the weekly green candle that closes above Line C. b. If the buyers fail, the sellers will close a red candle below 1180.00 per ounce. If this is the case, Gold is likely to test the 1142.80 level again and offers a great sell opportunity from the bottom of the red candle on the weekly chart.
Now we understand that Gold could go up or down, and we know where it is likely to go, let’s look at the Micro Perspective, at defined times each day, multiple days in a row, to analyse how we can take advantage of the smaller moves inside the far larger trends.
The Micro Perspective
Those of you who have read my previous articles will note that we are big fans of the 5 Minute, 15 Minute and 60 Minute Charts. We target these charts as they generate multiple trades both up and down on a daily basis, allowing us to compound quickly on our winners and also minimise the damage created by any losers.
For your guidance and planning, a 5 minute chart trader can get up to 20 trades per day. A 15 minute chart trader can get typically up to 10 trades per day and a 60 minute chart trader may get 4 trades per day. If each of these trades is potentially worth between $100 and $1000 profit to you, the following live chart examples and explanations may be worth “their weight in gold”, if you excuse the pun. Note that every trade does involve risk so we must be aware how to control this risk in each trade that we take.
Worked Example Number One
I have chosen the Singapore Open Move (11.00 a.m. each day) and the Dubai Open Move (4 p.m. each day to highlight the power of the Micro Perspective. Please note the following:
- Each trade is taken at exactly these times and therefore can’t be “cherry picked” for the good ones!
- There are over 8 defined Gold moves per day so if you are not available at 11.00 a.m., or 4 p.m., you can trade any and all of the other moves if you wish!
- I have chosen to use the 15 Minute Chart for the purpose of this article and trade explanation. In the case of Worked Example One, 8 April 2015, the Gold Market set up a stunning pattern and a subsequent buy signal. The Blue Arrow represents the time to buy and the blue box represents a ten-tick target. Clearly the market has gone beyond the blue box and hence ten ticks paying this target. Note: ten ticks is a great “Gold Trading Target”.
The horizontal line represents a seller failure point, which provides a great “lead in psychology” in favour of the buyers and a great buy signal.
Figure 2 – 8 April 2015 – Singapore Open.
What was the result of this trade? If you are a junior trader trading only a $10 Tick, and you got ten of these ticks, the trade is worth $100 USD profit taking you under 30 minutes (2 candles) to be paid. Your risk on the trade started at $80 but could have been reduced to zero after only 15 minutes in the trade
Worked Example Number Two
In the case of Worked Example Two, 9 April 2015, the Gold Market set up a stunning pattern and a subsequent sell signal. The Blue Arrow represents the time to sell and the blue box represents a ten tick target. Clearly the market has gone beyond the blue box, hence ten ticks paying this target
The horizontal line represents a buyer failure point, which provides a great “lead in psychology” in favour of the sellers and a great sell signal.
Figure 3 – 9 April 2015 – Singapore Open.
What was the result of this trade? If you were a junior trader, trading only a $10 Tick, and you got ten of these ticks, the trade is worth
$100 USD profit and took you under 30 minutes (2 candles) to be paid. Your risk on the trade started at $250 but could have been reduced to zero after only 20 minutes in the trade.
Worked Example Number Three
In the case of Worked Example Three, 9 April 2015, the Gold Market set up a stunning pattern and a subsequent sell signal. The Blue Arrow represents the time to sell and the blue box represents a ten tick target. Clearly the market has gone beyond the blue box and hence ten ticks paying this target.
The horizontal line represents a buyer failure point, which provides a great “lead in psychology” in favour of the sellers and a great sell signal.
Figure 3 – 9 April 2015 – Dubai Open.
What was the result of this trade? If you were a junior trader, trading only a $10 Tick, and you got ten of these ticks, the trade is worth $100 USD profit and took you under 15 minutes (1 candle) to be paid. Your risk on the trade started at $140 but could have been reduced to zero after only 12 minutes in the trade.
Where is the Bigger Money?
In the above examples we used a ten tick target, which I stated earlier, was great for Gold. A more advanced trader could have traded a $100 Tick as opposed to the $10 Tick we used in the examples. In all cases the trades have gone beyond ten ticks allowing for a $1000 USD target on each trade (10 ticks x $100 per tick). Not a bad pay rate when you consider the trades took less than 30 Minutes and each occurred at a time of the day when we know the market is highly likely to move. In all cases the trades have gone beyond ten ticks allowing for a $1000 USD target on each trade (10 ticks x $100 per tick). I trust that the above trade examples give you a significant insight in the power of trading Gold using a Micro Perspective and trading it both up and down.
Many traders I have worked with in the past have been stuck on the longer term (Macro) perspectives and waited days and days for a potential trade. After coaching, not only has their number of trades increased dramatically, but so has their understanding of the Micro Perspective as well.
Have a great trading day and I look very forward to your feedback!!! Lachlan Elsworth, System Architect, The International Day Trading Academy. The information in this article General Information Only. Any advice given or implied is General Advice Only. Neither your personal objectives or financial situation or needs have not been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice. The International Day Trading Academy is a wholly owned entity of Intelligent Financial Markets Pty Ltd (AFSL No. 426359).
The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.
Lachlan Elsworth, the Trading System architect behind the International Day Trading Academy, shows you how to make money out of the European market regardless of whether the bubble burst or holds on for another couple more months. Disclaimer: The Past Performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.
