Trend Trading Strategy for Gold Daytraders
Gold is one of the most trending assets in the financial market. There is a well-known proverb in the financial industry, “Trend is your friend”. There are two types of the trend in the price movement. The uptrend which consists of successive higher high associated with lower high whereas down trend consists of successive lower high associated lower.
A valid trend line is drawn by connecting the minimum of three price data. But here in this strategy, we will make some tweak while trading the gold with the trend line. Since the gold is the very high volatile asset, the price rarely retraces back to the trend line for the fourth time. For this reason, we will draw trend line in the gold with minimum two points and look for buying opportunity for the third time.
Let’s see an example of trend trading strategy in gold
Figure: trading the uptrend line in gold with stochastic confirmation
In the above figure, the uptrend line is drawn by connecting the most recent higher low swing. Day traders wait for the price to retraces back to the trend line where they take their trade.
Once the price hit the trend line with minor retracement, traders look for two things to enter the market. First of all, they look for price action confirmation signal in the trend line and secondly they look for a decent bounce in the stochastic indicator. In the case of uptrend, the signal line of the stochastic indicator must be ascending from the oversold region.
It’s imperative that traders correctly identify the rising value of the stochastic indicator from an oversold region before taking the trade since the trend line is based on two connecting points. Some professional day traders use three connecting points to draw the trend line while trading the gold. If the trend line is drawn based on three connecting points there is no need to use the stochastic oscillator.