Trade Example – Gold

Filed under: Learn Forex Trading |

I would like to provide a commentary for the chart for the XAU/USD pair, which is the chart for gold and one of the most popular pairs to trade off.

 

Figure 1.

If you look at Figure 1, you will see the daily chart for gold. Historically, gold has an upward bias, and if you invest in gold in the long term, then you will likely make some money. Therefore, we are always better, statistically speaking, to take long trades in gold.

 

What you can see in the chart is that there was a very neat area of support/resistance that formed, and I have marked this area with a green band. In the second half of the chart, you can also see that the 8-day EMA crossed above the 21-day EMA, signalling that the market was becoming increasingly bullish. However, it did not make any sense to take a long trade before that area of support/resistance was decisively broken.

 

Suddenly, we can see that there is a very bullish candle, which completely breaks through the support/resistance zone, and more importantly, it closes above this level by a significant amount. We could have take a long trade at the close of this candle, with a stop loss placed just a few pips below the low of the bullish candle, and a target of two times our risk.

 

As you can see, this chart has since moved up with a lot of momentum, and our target would have been met. The 8-day EMA has stayed nicely above the 21-day EMA, and if anything, those moving average are moving wider apart – demonstrating the strength of this momentum. This is a great example of trading a breakout of a support/resistance zone; and the trade was made even stronger by the fact that gold has a historical bullish bias. Well, that’s all for today – and I’ll be back with more next week.

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