James Kim@Saxo
James Kim, sales trader at Saxo Capital Markets Australia, examines trading strategies during week 43 in a technical analysis of charts for forex, indices and commodities.
Medium term
Trade view / 12 August 2016 at 9:48 GMT

Riding the primary trend in gold

Trader / Saxo Capital Markets Pte Ltd

On April 22 we highlighted a symmetrical triangle pattern on the XAUUSD (spot gold) dailies. We had a nice run up in gold prices from the beginning of January 2016. The symmetrical triangle, which can also be referred to as a coil, usually forms during a trend as a continuation pattern. Here is the previous trade view for reference:

Source: SaxoTraderGO 

In classic fashion, XAUUSD did breakout of its coil four trading sessions later on April 28. Though the initial breakout was short lived, XAUUSD did eventually go on to meet its price objective of 1341 on June 24, as measured by the widest distance of the symmetrical triangle (1284.8-1195.73) and applied to the breakout point (~1252):

XAUUSD 22 Apr Target Met
Source: SaxoTraderGO 

Let us take a moment to examine the three premises of technical analysis:

1) Market action discounts everything 
(it is all in the prices, hence a study of price action is all that is required)

2) Prices move in trends
(ride an existing trend until it shows signs of reversing)

3) History repeats itself
(Since these patterns have worked well in the past, it is assumed that they will continue to work well in the future)

Source: Murphy, John. Technical Analysis of the Financial Markets; (c) 1999.

Today, we are seeing the same symmetrical triangle formation. We have had a nice run up in XAUUSD prices in the beginning of June 2016, followed by converging trend lines whose validity has been tested on at least four occasions:

XAUUSD Price Target 1400
Source: SaxoTraderGO 

We can also switch our lenses to the 4-hour chart, where an established Cup and Handle pattern, a bullish continuation pattern has been forming. We can place a buy entry stop order at 1355, where the XAUUSD prices would have broken out of the “handle”:

XAUUSD Cup Handle
 Source: SaxoTraderGO


Buy XAUUSD via a entry stop order at 1355, GTC
This level represents a breakout of the current symmetrical triangle on the daily chart, and a breakout of the Cup and Handle formation on the 4-hour chart.

We base our stop on 2 x ATR*, i.e. 1355 - 2(15) = 1325
(* ATR = Average True Range)

1400, the price target of the current symmetrical triangle

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more


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