Protective stops served well for trading gold's rise
- Adjusting the stop loss as the market moves serves to “lock-in” profits
- Once in, I anticipated upside potential for golf in the months ahead
- In late February, gold’s rally began losing upside momentum
- Gold can (eventually) extend its developing bull market advance a lot further
By Max McKegg
Having previously enjoyed considerable success on the short side of gold’s bear market, it became increasingly apparent as 2015 progressed that gold was completing a complex “Double Three” Elliott Wave corrective structure, as well as a bullish classical charting Descending Wedge pattern, alerting me to the prospect of a major trend reversal and excellent buying opportunity (refer weekly chart below).
The first trading day of this year saw gold test Descending Wedge support and complete its requisite Elliott Wave downside corrective sequence in the process.
Subsequently, upon the completion of a short term basing formation, I bought gold at $1,078.30/oz (see daily chart below) with an initial stop loss at $1,057/oz (just under the last short term low and Wave (2) bottom) and alerted my subscribers accordingly. I was leveraged at 2:1, risking about 3.95% of my total trading capital.
However, I am prepared to accept this, as it does not preclude the opportunity of entering the trade again.
Also, this practice of adjusting my stop loss as the market moves my way serves to “lock-in” profits and if the market abruptly reverses direction (well before my ultimate objective is ever reached) then it safeguards me against an unexpected (and unwanted) loss, through holding onto a position for too long.
In short, it is effective risk management and this is what I live and die by as a professional trader.
Given the magnitude of gold’s bear market decline (from $1,920/oz - $1,046/oz, refer weekly chart below) the upside potential ahead was (and remains) considerable and I confidently entered my long gold position with “high hopes”, anticipating considerable upside potential in the months ahead.
However, in late February, gold’s rally began losing upside momentum (as a bearish short term Rising Wedge developed) and on March 13 I was stopped out of my long gold position at $1,234.90 (see daily chart below) for a gain of $156.60; yielding a total position profit of about 29% of my trading capital.
I am never willing to become “wedded” to any particular market view at the cost of my P+L and that is the key "take-away” from this trade.
-- Edited by Adam Courtenay
Max McKegg is managing director of Technical Research Limited. If you would like an email notice each time Max posts a trade, then click here to follow him.