Trade Breakdown – Gold (XAUUSD) Short July ’19

*Intraday resistance zone trade with a dramatic turn of events*

Following on from my first “Quick Charts” blog post, I thought I would follow up on the progress and outcome of my short trade on Gold spot price from earlier this week. This trade was a typical example of how I use intraday support and resistance zones to find price reversal areas and locate where price reactions will occur to capitalise on that.

If you haven’t already done so, then I highly recommend you read my previous blog post explaining what intraday support and resistance zones are and how you can trade them. This blog post can be found via the link below.

Let’s quickly look back at the 1hr price chart from the 30th July 2019 and I will talk you through why I was looking to short the Gold spot price chart at the 1428.50 level.

Gold spot 1 hour timeframe chart

The main confluences for taking a short position were as follows:

  1. Major bullish trendline broken and closed through on all timeframes.
  2. Lower highs and lower lows forming since the rejection of $1450
  3. Price pulled back in to the $1428 intraday resistance zone. This is marked on with the shaded area.
  4. Multiple wick rejections of the resistance zone.

These 4 pieces of analysis were more than enough to warrant me entering a short position in the afternoon of the 30th July. Below is the same chart but I have added my stop loss placement and profit target for the trade.

Gold spot 1 hour timeframe chart
(with short position)

Due to the spiky nature of the candlesticks that have formed in this zone prior to entry, I was very keen to have an overly conservative sized stop loss for this trade to keep it way above the the previous lower highs. My profit target was set at the $1400 psychological price level which would make a new lower low.

The intended reward:risk ratio of this trade was 4.4R.

Quick Note: This trade was entered a day before the US Fed were potentially going to lower US interest rates and therefore it was considered very high risk. I actually took a lot of criticism on the TradingView forum from people warning about this.

You can track the live progress of this trade on the TradingView platform by clicking on the link below.

Gold spot 1 hour timeframe chart
(during trade)

Almost immediately after entering the short position price began to climb with a series of bullish candle closures. Not ideal but this was the very reason why I put a wide stop loss because in my opinion, price would continue to react around this zone before eventually dropping.

You could say that it would have been better for me to wait for the break out below the resistance zone but I didn’t want to miss the trade and I am more than happy to have a wider SL and slightly reduced reward:risk ratio in this scenario. If I would have waited for the eventual bearish momentum break below the $1428.50 zone I would have got an entry at around $1424.60. With a stop loss above the candle highs, this would have produced an R:R of only 2.4R.

Strong bearish momentum did come in to the markets and Gold spot price witnessed a violent sell off. This was immediately after the US fed announced they had lowered interest rates.

I wont go in to the in’s and out’s of macro economics and fundamental trading but in my opinion this was a very strange and rather speculative reaction to this news. Lowering interest rates is a sign of a government trying to influence and prop up an economy and lowering interest rates usually lowers the value of that currency.

US dollar dropping in value should have a bullish effect on the price of spot gold that is trade against the USD. This violent sell off did help my short trade on gold but upon hearing the actual economic news, I was counting myself very lucky and looking at getting out of my short position at the perfect time.

Trade Management:

I actually took around 80% of profit at the $1405 price level which was where the -0.27 fibonacci extension level sat. This was after price paused and a few 1hr rejection candles formed.

Price did then go on to very nearly touch $1400 and my final TP but it missed it by around 6 pips. I closed the remaining 20% of the trade position at $1405.250 when the large 1hr bullish wick candle formed and closed above the -0.27 fib extension.

Post Trade Analysis: (getting out alive)

As you can see, my gut feeling was right. The initial news reaction was unjustified and completely against the fundamentals of macro economics. I am the first to admit I am an almost entirely technical trader but I am also not an idiot. When something happens that is as important as the reduction of interest rates of the largest currency in the world, I pay attention and adjust my bias accordingly.

Price completely reversed from the $1400 per ounce zone ($1400.60 to be precise) and then went on to completely engulf the previous days bearish move and go on to make a new higher high.

So there we have it, that is my post trade breakdown of my rather eventful week trading the Gold spot price. I hope you enjoyed the read and learnt that it pays to pay attention to the basic fundamentals of how the world financial markets work!

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