Thursday, 2 August 2012

Gold a low risk long right now

Gold a low risk long??? Right now??? An hour before the European Central Bank releases a statement??

Let me make it clear, I am not making a trade recommendation (see disclaimer). I'm simply sharing a little of my trade entry thought process. What about the risk management? What about the trade management? What about the exit(s)? I hope that if you trade, you have your own plan, and you do your own thing.

For a chartist, or at least for this chartist, low risk doesn't mean a probable winner, it means a low ratio of risk to potential reward. The following daily chart shows that Gold last night bounced higher from the 18 and 40 day moving average cross. The second chart in last night's post illustrates how effective an indicator that moving average combination has been as an indicator of Gold's trend at this time frame. It doesn't always work, nothing does, but often enough it precedes a sizeable move, far more sizeable than the initial risk. In my view Gold has no business being below the 40 day moving average if a rally is just beginning.

The next chart is an hourly chart, which shows Gold rallying from the trend line drawn from last week's lows. Super aggressive traders could measure some or all of their risk against the low of the recent false break below that trend line. Slightly less aggressive traders would measure their risk against last night's low. Those with more than half a brain would probably wait to see the action after the ECB meeting before pulling the trigger.

As a blogger, I'm on a hiding to nothing with this post, but what the heck. As a trader, if the set up doesn't produce a winning trade, no biggie. Losing trades are a fact of life, just another data point in my trading history.