FxWirePro: Gold’s swing trading opportunity via RV trades

The gold (XAUUSD) bears resume at 16M highs but the consolidation phase in the major uptrend on track of retracing 50% Fibonacci levels, bulls attempt to break the stiff resistance of $1,355.98 levels.

While on intraday charts, there has been a tough tug of war between bulls and bears, as a result, a couple of time the prices swings have spiked above SMAs and slid below the same. Amid this price action the major uptrend, for now, remains intact.

The minor trend sentiment has been slightly in bears’ favor.

RSI shows bearish divergence, while stochastic curves pop up with the overbought pressures.

MACD also shows bearish crossover but remaining in bullish territory.

Well, as with bullish swing trades, if the reward-to-risk ratio is acceptable, you could enter your trade using a sell-stop limit order.

This would result in selling underlying spot gold once it hits your entry point.

An alternative to short selling would be to buy an in-the-money put option. If you choose to use options, you would use a contingent order to buy the put after the gold price hit the entry price.

After your trade is open, you could then place a one-cancels-other order to cover both your stop loss price and your profit taking price. If one of these trades were executed, the other order would be worthless.

The strategy that focuses on taking smaller gains in short-term trends and cutting losses quicker. The gains might be smaller, but done consistently over time they can compound into excellent annual returns. Swing Trading positions are usually held a few days to a couple of weeks but can be held longer.

One can even think of shorting Feb’18 CME Gold on a view that the market is underpricing Fed tightening, given solid economic growth and a possible bottoming out in inflation.

A continuation of the global reflation trade in 2018 has sent the trade-weighted US Dollar lower, boosting gold higher following the December FOMC meeting and rate hike.

Looking ahead, the Fed under incoming Chair Powell will hike in March followed by three more hikes in 2018.  As such, we believe gold will continue to reprice lower over the next couple of months and stay short.

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