Trade Setup on XAUUSD Coming Soon

Hello there Traders,

Hope you all had a great weekend and welcome to today’s article on XAUUSD. Upon recommendation of Charles who sent us a message through our Facebook page, we will be revisiting the Golden commodity. Thank you Charles for your feedback and let us know what your analysis is in the comment section down below! Thanks again!

It was a more than month ago since we last reviewed Gold. In our articles of January and February we were keeping a keen eye out on XAUUSD as we expected a huge move down. That indeed materialized as our regular readers know very well: a fall from 1690 to 1555 was a great trade.

1) http://www.winnersedgetrading.com/thursdays-eurusd-xauusd-trading-plan/

2) http://www.winnersedgetrading.com/forex-market-on-fire/

Upcoming trade

Not too much has happened in the meantime. When looking at the 4 hour and day chart, Gold has been correcting itself slowly but surely to the upside bouncing of the $1,555 target and hitting temporary resistance at the $1,615 price level.

When a correction is so slow and tedious, that is actually when a trader’s awareness should be increasing! A trade opportunity might be around the corner…

The market always moves in cycles of trending and ranging modes. Traders want to trade the trending modes. But these moves are relatively short time period and account for only 15-30% of the market movement. Basically, corrections and sideways moves dominant the market.

To get a proficient grasp on these concepts, please read more Forex advice in these great FX articles on trading impulses and interpreting break outs of consolidation periods: 1) trading breakouts real or false and 2) simple Forex trading impulsive moves. These are a must / essential Forex training for any FX trader.

So how does that information to XAUSD’s currency situation? Here is a summary:

  • Now that a substantial corrective period has taken place, the chances of an impulsive move are increasing.
  • No, it does not have to occur immediately. But…
  • Our trading awareness should increase and the pair should definitely be put on our watch list.
  • Basically, the currency has the space and opportunity to move impulsively…

MAR 25 2013 XAUUSD DAY

Now that we have an idea and a good reason to expect an impulse to occur sometime soon, we need to answer some other important questions as well:

-          To which direction will the impulse happen?

-          At what levels will the impulse most likely occur?

-          To what levels could the currency continue before it resumes yet another consolidation period?

Before we do this, lets zoom out to the week chart.

Review week chart

The uptrend on XAUUSD was of course huge and lengthy. Within 3 years Gold more than doubled in value from $700 in November 2008 to $1,900 in August 2011. The support trend line gave a great indication of this uptrend.

MAR 25 2013 XAUUSD WEEK 2

After the last spike up in the summer of 2011, the commodity has settled in a sideways range ever since. The support trend line broke a year ago and the uptrend has been replaced by a sideways range.

If we zoom into more recent price action, then we are able to detect a range with 5 touches on the bottom and 3 touches on the tops. The range looks well built and strong.

MAR 25 2013 XAUUSD WEEK

So the questions arise:

-          Will the currency keep ranging?

-          Will the currency break?

-          And if so, to which side?

The currency could in fact break to both sides.

1)      Gold was in a huge uptrend so a continuation of the trend is a possibility.

2)      Then again, if we examine the correction more carefully, we can see that the first correction to the downside had a lot of force and momentum as well.

  1. After that there is a triangle visible with 5 waves (a,b,c,d,e) completed.
  2. Could XAUUSD be ready for a break to the downside?
  3. The week chart will no provide us that answer until we break out of the range.

In any case, we are at a talking point. Will XAUUSD bounce back to the top of the range or will we see break of the range to the downside? Let us continue with the analysis to figure out how to trade XAUUSD. For that, we must zoom into lower charts to identify areas of confluence that are worth trading.

Day chart

The day chart shows us the clear downtrend with lower highs and lower lows. The commodity has bounced up twice making double bottom just recently.

The down trend channel is a key factor. As long as price remains in the day down trend channel, we should realize that a move down back to the bottom of the weekly wedge for either triple bottom or a break of the wedge is a strong likelihood.

There are extra resistance levels at the dark red lines which are drawn at previous bottoms and support places, which should now act as as resistance.

If we place a Fib on the down move, then we can also see 500 and 618 Fib confluences at those levels.

MAR 25 2013 XAUUSD DAY

4 hour chart

The 4 hour chart is showing a very shallow corrective type of an uptrend. This upward channel will sooner or later bump into the bigger downtrend channel on the day chart.

The maximum correction I expect on this chart is a move up to the red box where there was a clear sell off from these levels. At that point in time the commodity halted for a small pause after an impulsive down move, but it quickly continued its downward path of a very timid sideways correction.

MAR 25 2013 XAUUSD 4 HR

Trade setups

Here are the potential Forex trade setup opportunities which I am able to detect:

1)      Any break of the lower trend line of the 4 hour corrective up trend channel and the last 4 hour support level (horizontal red line) and hook back to that broken support level would be a great short trade, with a Stop Loss above the turning spot;

2)      A candle stick reversal pattern at the 500 fib at +/-$1,626 with a SL above the candle stick;

3)      A direct entry at the 618 Fib at +/-$1,643 with a SL above the red box levels ($1,654).

The targets are:

a)      Day support line at $1,570;

b)      Day triple bottom at +/- $1,555-$1,560;

c)       A break of the day support back to weekly bottom at the -0.272 target at $1,520;

d)      A break of the weekly support to -0.618 target at $1,475 and lower.

Invalidation

The entire down trade setup is invalidated once the down trend line is broken. At that point a new analysis is needed to reevaluate whether the break is passive and temporary and maybe just a small false break out. In that case the down trend could still be in force and continue. Or is the break out real and strong and can we expect a shift in gears. In that case the commodity would have plenty of space back to the top of the weekly range and we can catch great trades in there.

Thanks for taking time to read this article. It is much appreciated.

If you would like to see a commodity or currencies being analyzed just like the one here above, please do not hesitate to write a comment down below.

Also if you want to add anything to the above, we are all ears! :)

Good Trading!

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Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).
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  • http://twitter.com/WinnersEdgeTrad Winners Edge Trading

    Yes GBPUSD indeed broke a big trend line / triangle. It is possible indeed. We should be aware of that possibility. That scenario however is more probable when we break out of that down trend line on the day chart. That would be a signal that the GBPUSD is correcting to higher levels. Thanks for you comment!

  • Guest

    and im not sure if this is correct, GBPUSD broke a weekly and month triangle. I’m thinking it may retrace back to retest the bottom trendline before sellers come back in?

  • http://www.facebook.com/charlesxavierpatrick Charles Xavier Patrick

    its great to have different opinions and i sure for one listen to you guys for trade setups and potential. I was just scanning through some charts and i came across a channel break on EURCAD weekly. hopefully a retest and a new break would provide some good trading opportunity soon!

    thanks Winner’s Edge Trading!

  • http://twitter.com/WinnersEdgeTrad Winners Edge Trading

    Hi Charles!

    Thanks for your comment and awesome analysis! We love discussing charts and potential setups so it’s just so cool to see your 2 charts. Awesome stuff and much appreciated! Hope to see your analysis more often :)

    Yes a descending wedge on the week is definitely possible. Good spot! :)

    I was expecting a push up to that zone as well and expecting the break closer to the resistance zones and/or down trend channel. I am watching price action closely to see if this is a false break or a sustainable break for more downside. Will take a fresh look tomorrow morning :) Lets see what the market gives us right :)

    In any case good looking charts and entry order! Looking forward to your next charts and thanks again. Cheers! Chris

  • http://twitter.com/WinnersEdgeTrad Winners Edge Trading

    Yes there are some key levels remaining indeed, especially the bottom of the week wedge. Would be VERY interesting trading sometime soon. Either a move back up to top of week wedge or a break. :)

  • http://twitter.com/WinnersEdgeTrad Winners Edge Trading

    Hi Charles! Thank you for your comment and awesome analysis! We love discussing charts and potential setups so it’s just so cool to see your 2 charts. Awesome stuff and much appreciated! Hope to see your analysis more often :)

    Yes a descending wedge on the week is definitely possible. Good spot! :)

    I was expecting a push up to that zone as well and expecting the break closer to the resistance zones and/or down trend channel. I am watching price action closely to see if this is a false break or a sustainable break for more downside. Will take a fresh look tomorrow morning :) Lets see what the market gives us right :)

    In any case good looking charts and entry order! Looking forward to your next charts and thanks again. Cheers! Chris

  • http://www.facebook.com/charlesxavierpatrick Charles Xavier Patrick

    Hi Chris! great read! thank you for this! today, it took a hit and broke downside of the consolidation channel to the upside on the day chart. i’m thinking it would probably head for 1577, 1568 or thereabouts finding support at the double bottom trendline. I missed this plunge. Before today’s market movement, i did some charting on the day chart. I drew a bearish trendline connecting the highs of 4/10/2012 and 23/11/2012.

    I have two channels from the bottom. One channel is the recent retracement move to the topside. I have another channel connecting the lows of 21/02/2013 and 8/3/2013 to the highs of 26/2/2013. With all these lines connecting at a intersection, I saw 1633 as a potential turning point on the downside.

    Today’s plunge kinda invalidated my approach for a sell limit but i would wait for a close of today’s candle. might very well provide a higher low.

    on the day chart it rejected 1612 thrice so i believe a move to the next support is on the cards.

    the 1552 level on the week chart seems to be its last hope of any support. a break below that would probably mean a bearish move following the years of bullishness. haha. on the week chart, i notice a huge descending triangle? based on the week chart triangle, 1552-1553 seems to be a good level of support but the lower highs stemming from 4/9/2011 and 30/9/2012 is pointing to a break on the downside for me if it clears 1552-1553.

    interesting thing is that it bounced off this level on the 3rd of this month. haha as you mentioned earlier, market is mostly consolidating.

    thank you so much for your advice! this website is just simply awesome! can’t waif for daily analysis later!

    here’re my charts! i just realised as i got home i actually had a pending sell order!

  • http://www.facebook.com/charlesxavierpatrick Charles Xavier Patrick

    Hi Chris! great read! thank you for this! today, it took a hit and broke downside of the consolidation channel to the upside on the day chart. i’m thinking it would probably head for 1577, 1568 or thereabouts finding support at the double bottom trendline. I missed this plunge. Before today’s market movement, i did some charting on the day chart. I drew a bearish trendline connecting the highs of 4/10/2012 and 23/11/2012.

    I have two channels from the bottom. One channel is the recent retracement move to the topside. I have another channel connecting the lows of 21/02/2013 and 8/3/2013 to the highs of 26/2/2013. With all these lines connecting at a intersection, I saw 1633 as a potential turning point on the downside.

    Today’s plunge kinda invalidated my approach for a sell limit but i would wait for a close of today’s candle. might very well provide a higher low.

    on the day chart it rejected 1612 thrice so i believe a move to the next support is on the cards.

    the 1552 level on the week chart seems to be its last hope of any support. a break below that would probably mean a bearish move following the years of bullishness. haha. on the week chart, i notice a huge descending triangle? based on the week chart triangle, 1552-1553 seems to be a good level of support but the lower highs stemming from 4/9/2011 and 30/9/2012 is pointing to a break on the downside for me if it clears 1552-1553.

    interesting thing is that it bounced off this level on the 3rd of this month. haha as you mentioned earlier, market is mostly consolidating.

    thank you so much for your advice! this website is just simply awesome! can’t waif for daily analysis later!