I noticed that there were a few headlines about gold today. Prop traders without a plan, might sit up and take notice. Those of you who who have a daily plan are most likely non-plused.
A few thoughts of my thoughts on gold for some perspective:
- Gold has been in a downtrend, until tonight’s session
- The price move was $12 during the day, and another $14 overnight
- The price move is a little more than 2%
- The 20 day ATR is $22 or about 2%
You have a normal day volatility-wise, yet the $26 move will likely get more headlines than the down trend being broken. It is entirely possible that gold and the stock markets will be correlated in the near term, but that doesn’t mean you can’t make money and eventually trade the divergence.
Gold can get much more cheap – a trend follower might have entered the market short off the rally to the trend-line (in red) if the PRICE reversed. But it didn’t – it rallied through the trend line and the recent down trend has been broken. That does not mean that gold cannot go back down, but it does mean that if you are short, you better have an idea about what your next move is.
A trend follower will be willing to purchase gold (long) at much higher prices if it resumes an uptrend, and not have regrets about how much cheaper it was several days or weeks ago (at today’s prices for example). No one has an idea on the absolute upside, but the odds are with you when you buy as it’s making higher prices.
Marc Rich would only buy if he had another buyer lined up.
Victor Sperandeo would most likely have been short on the reversal at the trend-line.
Jim Rogers may be long and very early, but small enough to not get killed. He would add later.
We will look at the odds and probabilities of such trades in futures posts.