Trade Example – XAU/USD (Gold)

Filed under: Learn Forex Trading |

 

There was one possible price action trade setup on the XAU/USD pair today (the pair for gold), but it is not one that I felt was strong enough to warrant putting an order in. However, regardless of this, I would like to talk you through this setup anyway so that we can monitor it and see how it goes…

 

Figure 1,

Figure 1,

To begin with, as always, take a look at Figure 1. This is the daily chart for the XAU/USD pair, and it is the only chart that we will be looking at for this particular setup. What you can see is that the chart is stuck in a bit of a trading range at present, with a clear upper and lower boundary. However, there is also a possible minor level of support/resistance within this trading range, which I have marked in with a horizontal green band. In the very short term (just a few days), price has moved down, and then moved back up to around a 50% Fibonacci retracement area, before forming a couple of upper shadows, followed by a long pin bar. This tells us that this area is being rejected, and that a move down to the lower end of the trading range may be imminent.

 

What we could do here, if we were confident enough about the setup, would be to enter at a 50% retracement of the pin bar, with a stop loss placed just a few pips above the high of the pin bar, and a target set of two times the risk. By entering at a 50% retracement, we would be able to get a positive risk reward of 1:2 before the lower boundary of the trading range becomes a factor. Without this positive risk-reward scenario, then the setup would simply not be there. We will see how this possible setup pans out. That’s it for today – more tomorrow.

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