Gold and Aussie updates

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Both Gold and Aussie have reached their targets with not much sign of abating. Here are the update charts.

These relate to this post on trading the Aussie dollar and this post on gold trading.

Firstly the Aussie dollar you will recall the entry from this post on entry signal for Aussie dollar US dollar.

This outcome has been powerful following that trend and from buying a new entry into zone 3 (NB the zones have been marked slightly off, the numbers in the chart – 1,2,3,4 should be LOWER down within the respective channel).

Follow up to channel trading Aussie

We will go through each part as a summary.

Firstly, we were looking at waiting for a retrace into zone 4, followed by a strong reversal back into zone 3. This occurred 21 candles from the right, counting left (see the first image – I have redrawn the channel lines so they may be slightly different).

We said it is worth waiting for a 40, 50 or 60% retrace of such an entry candle and this occurred during the next candle, giving us our entry.

A possible first target then becomes the top of zone 2.

Note, there are other possibilities for targets. For instance, you could use the level of ZONE 2’s top and ZONE 1’s top AT THE TIME OF ENTRY for alternative (and more conservative targets.

The stop marked on image 2 is a sensible position to put the stop, underneath the most recent swing low. It could also follow a break of say 10-15 pips below the channel bottom. I prefer the swing low stop, because sometimes the market will spike below a channel, but then close back inside the channel to and the channel may remain valid.

Target 2 is the level of the top of zone 1.

It can easily be seen that the risk:reward ratio for this trade no matter which target is outstanding. Getting it right only 40% of the time if aiming for target 2, would yield a profitable result if consistently maintained over the long term.

The stop loss: 35 pips (30+2 spread+3 slippage)

The take profit at each target and risk:reward ratio

T1: 55 points profit vs. 35 pips potential loss. = 1:1.5 risk reward

T2: 100 points profit vs 35 pips potential loss. 1:2.85 risk reward

100 trades at 1:2.85 risk reward, with 60 incorrect (40% success rate)

= -1(35 x 60) + 1(100×40)

= -2100 + 4000

= 1900 pips (net profit).

As for the gold trade, this has also reached the extension target mentioned in the earlier post.

Here was intial trade call – NB I was sick over Christmas, hence the use of a mobile app image.

Daily gold chart – buy on the close of the day after the first retrace day of a strong upmove

Here was the first follow up image, including a target area for the extension.

Gold Daily – has followed though from Quantisi Ltd’s entry.

And here is the result, I am delighted to present:

Let’s go through this post-analysis.

Firstly, we’ve been through the entry several times, I suggest going back over the previous posts on gold for the entry.

I’ve added into this chart the possible options for stops we could have used. I opted on a discretionary basis for the option 2 stop or thereabouts, essentially in case of a nasty spike down at a higher level, which did not occur. Therefore, I had to scale down position sizing in order to be able to reasonably accept the potential loss of the stop, unfortunately, but that is the nature of discretionary decision making.

Stop options 1a, 1b, and 1c would have meant that the market had to take out the low of the day prior, the day prior to that, or 3 days prior to the entry candle, again all reasonable and increasingly liberal places to put a hard stop and effectively, accept a loss.

None of these stops would have been hit.

Target 1 is not an unreasonable first target to aim for because it is a hit of the top Bollinger Band. These bands are simply an extension above and below the 20 day simple moving average. The distance from the moving average above and below the bands are 2 standard deviations of the price during that 20 day period. These are the standard settings. Assuming normally distributed prices around the moving mean (the simple moving average), the price ought to stay within the bands approximately 95% of the time. Therefore, when the price hits or exceeds above or below the bands, it can be a time to look for reversals. There are notable exceptions to this, just as there are notable reasons one might consider ‘obeying’ the Bollinger Bands. We’ll go through this in another post.

As can be seen, yesterday and today, the extension target (2) has been hit at 1200. Although there are chances of gold going much higher, I will be coming back to gold later now this trade cycle has completed itself.

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