Gold: Is More Volatility To Follow After Yesterday's Huge Move?
The daily candle chart below shows the price history of Gold over the medium term. This Contract for Difference (CFD) aims to track the underlying spot price of Gold, and is trading near 1199.48 around time of publication today.
Just a few days ago, in the last post about Gold in Ideas You Can Trade, the trend was described as preparing for a pullback, and since then a pullback indeed followed yet was subsequently followed by a huge recovery in yesterday's session.
Following this volatile one-day recovery, as gold returns towards the 1200.00 Line, the question as to whether more volatility will follow has to do with how support does around this key support line.
1200.00 is a psychological level and if support fails on this line, a steeper, larger or equally volatile move down (similar to yesterday but in the other direction) could unfold, whereas if support holds - then buyers may have more confidence to come in with long positions on the basis that the floor is solidifying. An additional chart zoomed out shows how the area around 1200.00 was more supportive last year than it has been in 2014 so far.
Considering that the [bearish] line of the medium term bearish channel also currently intersects the 1200.00 level, this overlapping of trend lines could also be fueling the volumes. Either way yesterday's sizable move is a warning of how more volatility could follow, and thus requires appropriate cautions.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1223.00 with a Limit to take profit @ 1248.00 and a stop-loss @ 1199.00 Risk/Reward Summary: Limit risk = +25.00 Profit / (-24.00) stop-loss risk = Gain to Loss ratio = 1.04
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1179.00 with a Limit to take profit @ 1151.00 and a stop-loss @ 1202.00 Risk/Reward Summary: Limit risk =28.00 profit / (-23.00) Stop-loss risk = Gain to Loss Ratio = 1.21
Medium Term Daily Candle Chart Zoomed in:
Medium Term Daily Candle Chart Zoomed out: