The Forex Chronicles

Gold Multi-Timeframe Trade Example – 28 November 2023

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Introduction

I was recently asked to provide a few more examples regarding the multi-timeframe strategy that I like to use to trade the forex and commodity markets, so in this article I want to break down a gold trade from earlier this week that was based on this strategy.

Just to reiterate what I said in the previous USD/JPY trade example, what you are looking for with this strategy is for a market to be trending strongly in the same direction on two or three different timeframes, and temporarily pulling back on a shorter time frame.

Then you want to wait for a strong signal that the longer term trade has resumed on this shorter time frame so that you can then jump in and take the trade with the underlying trend.

Although there will always be false price moves, the reality is that when four different timeframes are in alignment in terms of the overall trend, the odds of success are greatly enhanced.

Underlying Gold Trend

Diving straight into the trade breakdown of gold, if we take a look at the weekly, daily and 4-hour charts, we can see that the price was above my two preferred moving averages, the EMA(10) and EMA(20), on all three of these timeframes as we started the week:

Indeed it was actually above the EMA(50) and EMA(200) on all of these timeframes as well, which just underlines how strongly the price of gold has been trending upwards in recent times.

Waiting For a Pullback

The next step is to drop down to the 1-hour chart and wait for a pullback to the EMA(10) and EMA(20) moving averages. Ideally we want to see the price actually dropping below these moving averages before breaking upwards once again and starting a new upward leg on this lower timeframe.

As you can see from the chart below, the price did just this on Tuesday morning, and there was subsequently some very nice consolidation within a very tight band between the 10 and 20-period moving averages:

When this happens, there is often a strong breakout about to emerge, and in this case it was an upward breakout just before the US market opened later that day, which is exactly what we wanted to see because the trend was already bullish on the three higher timeframes mentioned earlier.

Then it is just a matter of entering a long position on the close of this strong breakout candle, which I have highlighted on the chart, or taking a chance that there will be a slight pullback after the close of the candle that will allow you to enter at a slightly better price.

Trade Outcome

If you entered at the close of the 1-hour breakout candle at $2021.56, you could have banked up to $21.53 profit because the price hit a high of $2043.09 later that afternoon, and actually hit a high of $2052 overnight.

So this demonstrates the effectiveness of this multi-timeframe strategy if you wait for a pullback on the shorter timeframe and then enter a position on a resumption of the underlying trend from the three higher timeframes.

Not every trade will work out of course, but if you always trade with the trend, you should hopefully win more times than you lose if you wait for the best entries.

Gold Chart Highlights Significance of Historical Trendlines

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Gold Price Action

If you look at the long-term daily chart of gold, you will see that the price has been steadily rising upwards since the end of 2018.

As you can see from the chart below, the trendline marking the two lowest points at the start of this move has been a good guide because the price stayed above this trendline for many weeks and months and never really threatened to go below this line.

Gold Price Chart - 2 April 2019

Indeed the price crossed above the 200-day exponential moving average, as did the 20, 50 and 100-day moving averages, highlighting a very strong upward move.

The price actually reached a high of around $1346, but it has since fallen below this trendline, but the interesting thing is that this trendline is now acting as resistance.

Trendline Resistance

This occurs quite often in the financial markets. A trendline that previously acted as support is now acting as resistance, and the reason why is because traders and financial institutions are always looking for strong areas of support or resistance to place their trades, and this is one such example.

In this case, after breaking below the initial trendline, the price has bounced back on several occasions, but has struggled to move above this extended trendline. In fact on every occasion gold has been sold off whenever it has come close to this line.

Subsequently the upward momentum finally subsided and the price is now back below the critical $1300 level at $1287.

Future Price Direction

It is quite hard to predict where the price is going to go from here, but you would have to say that it is more likely to continue falling further below $1300, particularly if the general stock markets remain strong.

The trendline is likely to continue acting as resistance if the price does bounce back, and at the current time, it is hard to see what kind of economic factors are going to drive the price above this level.

Furthermore, the 200-day moving average is starting to become significant once again because the price is only just above this key indicator.

If it were to fall below this moving average and was backed by strong volumes, then there could be a much more sustained downwards move, with price targets of $1260, $1240 and $1220 being easily achievable in the short-medium term.

Anyway the key point I wanted to make is that historical trendlines can be very significant when you are looking for areas of support and resistance, and this is a classic example of one such instance.

Gold Breaks Below $1300 – March 2019

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Introduction

With the major stock markets surging higher in 2019, I think many people naturally assumed that the price of gold would struggle to stay above $1300. I know I certainly did because I made this exact point in previous blog posts.

Well it has taken a while because the price of gold headed to around $1345 a few weeks ago, but it has since fallen back sharply and is now trading below $1300 at around $1293.5 at the time of writing.

Indeed this was apparently the biggest weekly decline since August 2018, which shows just how strong a move this actually was last week.

It is not an insignificant move either because if you look at the long-term daily chart below, you can see that it has broken below the upward trendline that has been in place since November last year:

Gold Daily Chart - 4 March 2019

The question is; where does it go from here?

Future Price Direction

It is actually very difficult to call this market right now because it largely depends on what the stock markets do in the coming weeks, and these too are difficult to call.

With Britain scheduled to leave the European Union at the end of this month, and Donald Trump’s comments and actions continuing to weigh heavily on the markets, nobody can really be sure if the markets are going to continue to move higher in the future, or whether they will finally start to run out of momentum and fall back.

Brexit alone is causing so much uncertainty because it is looking increasingly unlikely that there will be a firm resolution before the official exit date, and the USA’s future relationship with China and other countries isn’t any clearer.

So all we can really do is to rely on technical analysis to guide us with regards to the gold price, and in that respect you would have to say that gold may well struggle to break back above the $1300 level now that it has broken below this significant round number.

Looking further ahead, further weakness is likely and I would say that there is every chance that the price will move towards the 200-day exponential moving average at some point, which currently stands at around $1268.

Trading Opportunity

Although I am predicting further weakness below $1300, I wouldn’t necessarily say that this is a strong trading opportunity right now because it doesn’t really represent a high-probability trade.

With gold and other commodities, I think it is better to wait for a period of consolidation where the markets are range-bound for several weeks, and then trade the resulting breakout, similar to what we saw at the January when the price rocketed above $1300 after several weeks of sideways movement.

So it is probably better to wait and see if the price stays around the 1290-1300 level for several days because if this occurs, then a downward breakout could be a very profitable trade.

Gold, Oil and Stock Markets All Looking Strong – February 2019

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Markets Summary

It has been very interesting to see how the markets have traded in the first few months of 2019, and I think it is fair to say that many people will have been surprised by just how high they have gone.

After crashing in November and December to panic-inducing lows, the Dow Jones has staged a remarkable turnaround, and is now just over 1000 points off its all time high at the time of writing.

Dow Jones Daily Chart - 19 February 2019

It wasn’t long ago that the Dow Jones was trading as low as 21,500, and everyone was predicting it would go much lower, but it is currently up to 25,890 and the strong upward trend is showing no signs that it is potentially coming to an end.

The same can be said for the FTSE 100. It was trading between 6600 and 6800 for quite a long time towards the end of last year, and some experts were predicting that it would fall to around 6000, but it is now trading above 7200, and could continue to edge higher throughout 2019.

Normally with such strong stock markets around the world, you might expect that the price of gold would have dropped because people naturally tend to sell some of their gold and invest the proceeds into stocks when the markets are rising. However this hasn’t happened at all, and the price of gold has actually risen strongly above the previous resistance level of $1300.

Finally, there is one other market that has risen strongly in recent weeks, and that’s the oil market. The price of both Brent crude and US crude oil has risen sharply, and they currently stand at $66.60 and $56.45 respectively.

Time To Short These Markets?

The question many traders are now asking themselves is; is this a good time to open short positions on some of these markets?

My own view is that all of these markets are now looking seriously overbought according to many different indicators, but that doesn’t necessarily mean that this is a good time to go short.

They were also looking overbought one week ago, and indeed two weeks ago, for example, but have still continued to move higher.

Closing Comments

The point I really want to get across is that trying to call the top of a strong rising market is a very dangerous game. Yes you may get lucky at times when all your technical indicators seem to suggest that it is set to reverse, but the price can easily continue to go higher and potentially take out your stop loss if you are not careful.

I myself have been wrong with some of my predictions on this blog because I thought the Dow Jones and US crude would both run into resistance and move lower, but the price of both of these markets just went straight through these resistance levels.

So it is often a much better strategy to find a strategy that trades in the same direction as the prevailing trend when the markets are rising so strongly. Of course these markets can’t keep on rising forever and there will eventually be a reversal, but trying to predict when this will occur is never easy.

Dow Jones and Gold Trading Close to Major Resistance Levels

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Previous Analysis

I have been looking at the price of both gold and the Dow Jones index in recent weeks because they have both been trading close to major resistance levels, and are therefore potentially worth shorting.

Since I wrote these two blog posts, nothing much as changed, particularly in the case of gold, but the Dow Jones has continued to move higher, and is now very close to the major resistance levels that I highlighted previously.

So I thought it would be a good idea to take another look at these two markets and make a prediction as to where they might be headed.

Please note that these are only my own personal opinions and do not in any way represent financial or trading advice of any kind.

Gold

I mentioned before that $1300 is acting as a major resistance level at the moment, and that still seems to be the case today:

Gold Price Chart - 18 January

At that time it was trading at $1283, but as you can see from the chart above, the price has slowly edged higher towards the $1300 level since then.

Nevertheless, it has once again stalled in the $1290s as the general stock markets have continued to rise, and as you can see from the chart above, the price has been trading in an ever decreasing triangle.

Therefore I personally think that it is only a matter of time before we see a breakout, and the likelihood is that it will be a downward one because of the continual round number resistance at $1300 and the tight price action.

So it wouldn’t be at all surprising if the price were to move back to around $1250-$1260, towards the 100 and 200-day moving averages, but if the price was to go back to $1300, it may also be worth opening a short here because I think this would be a fairly high probability set-up as well.

Dow Jones

As mentioned earlier, the Dow Jones has continued to recover from its December lows, and this isn’t really that surprising.

I said in a previous post that the price could easily continue moving higher and test its long-term moving averages, which at that time stood at 24,507 (EMA (100)) and 24,741 (EMA (200)), and at the time of writing, the price is now trading at 24,406 pre-market opening.

Dow Jones Chart - 18 January

Indeed it has just touched the EMA (100) yesterday and today, having risen sharply from a low of 21,454, so it is now looking seriously overbought and could now be ready to turn lower now that it has reached two major resistance levels (the EMA (200) is just 280 points higher).

As always, the market never gives you a clear signal that a top or a bottom has been reached, but with the price trading close to two key moving averages, I think it could be a good opportunity to open a short position if we get a pin bar on the daily chart or one of the lower time frames, for example, because this would also be a high probability set-up.