Trad 1. Long #Gold. (Updated 4/11/18)

Here is the first of the two trades I have left, as of this morning.

Long Gold, June ’18 expiration. First entry at 1,336.90, with stop at 1,290.90. That’s $700 risk right off the bat, but in Gold, you can’t trade much smaller than this.

30-min chart.

Screen Shot 2018-04-09 at 2.20.20 PM

Logic: anticipated a breakout of a very-short pattern with one contract and then added one more contract after the breakout at 1,337.50. As the breakout stood up to the expected retracing action, I moved my second stop close to the entry, risking virtually $0 on the second leg at the time of this writing. I may take the second contract off the table soon, collect some profits and diminish the initial $700 pain threshold to around $300.

The smaller pattern in consideration is part of two bigger patterns: 1) reversal to the mean and potentially to the top of the 3.5-month it’s been in (see daily chart below),

Screen Shot 2018-04-09 at 1.59.54 PM


2) a bigger potential, a “head-and-shoulder” reversal that goes back to 2013. (Weekly chart)

Screen Shot 2018-04-09 at 2.06.03 PM

It’s very unlikely that I will stay in for the trade long enough to see the #2 pattern develop. I will be happy with a 1,345-50 target, which it might hit today already.

The fundamental logic has been the following:

the range-bound price action is reflective of indecision. There are no major catalysts moving the price one way or the other. The most important one would be interest rates. While the consensus is that rates are trending higher, the hoped/expected “hawkishness” of new Fed Chair Powell, hasn’t (yet) materialized. He’s optimistic but cautious. As he should be. A speedy rate increase would press gold down, with the USD raising.

At the same time, inflation is trickling higher, which is a supportive force for prices. The precursor of inflation is wage growth. That’s just starting to heat up a bit.

Who gets out of hand first, inflation or rate hikes? That would move Gold.

In between, there is a lot of noise around “safe haven” demand, given the chaotic tone set by the White House. Sure, there are lots of reason to seek safe haven in gold. There are always good reasons for that… Just not enough, in my opinion, to drive the price today.

Look to inflation, interest rates and US Dollar direction for clues on where Gold goes next.

Most importantly, for the sake of this project, it is helpful for me to slow down enough to trade only what I consider a good enough trade, with odds closer to a positive trade than a lucky gamble. I also have to slow down enough to be able to explain my thought process with this trade, which is the only way to make this project helpful to you the reader.

In the meantime, I may have bought myself another trade.

UPDATE: 4/10/18 – 8:40AM

Sold 1 contract yesterday at 1340. Profit of $250.

Price action was supportive overnight, so I moved my stop to the low of the night, from 1329 to 1334, reducing the risk of loss from $700 to $300 on the first leg.

Total risk of loss on this trade idea is now down to $50. Given that I have lost $420 on the coffee trade, I still have a little risk left, which I have promptly and probably too quickly traded in for soybeans, at 1056… with a tight stop… obviously stopped. Old habits are tough to beat. Lost $300 on that trade. 😦

UPDATE: 4/10/18 – 10:40 AM

Moved stop to breakeven for the first leg, that is 1,336.80. Price action this morning is lackluster. I would have expected a move along equities, but it isn’t happening. There is also a time limit to how long it’s worth waiting for a move. With a small account, that time is pretty small given the small risk available.

UPDATE: 4/11/18 – 7:15 AM

Moved stop loss order to 1,344.80, just before inflation data. Not willing to watch it retrace the entire overnight move. Safe haven demand this morning is working (despite my skepticism). I think it’s a short-term spike, but if inflation is stronger than expected, Gold might break 1,350. Then we are off to the races. Otherwise, retrace and take profits.

UPDATE: 4/11/18 – 7:45 AM

Price rallied further, following CPI data coming in line with expectations (stronger vs last month).  Moved stop to 1,351.80.   That would provide a $1,500 profit on that trade, albeit a $500 loss from where the price is right now.

Yet, another indication of the margin of improvement I still have, I fell for the silver trick…  namely, I chased a small intraday breakout following the CPI data.  Then, realizing that it wasn’t ideal to overload on metals, I chickened out with a crappy stop, before I had the courage (I did have the sense already) to take it off immediately or put a proper stop.  When a trade is badly executed, it’s better to take off it immediately, take a small loss, rather than “hope for the best.”

UPDATE: 4/11/18 – 1:30 PM

What a ride! Price flew up to 1,369.  Then went on a brutal reversal, stopping me out at the above-mentioned point, 1,351.80.  “Obviously” prices quickly reversed from 1,351,60 upward (1,354, at the time of this writing).  Hindsight 20/20, given the smaller timeframes, I could have saved $600 and put my stop at 1,358.  However, with such a strong and volatile move, the bigger patterns that I mentioned early on were starting to come into play and those demanded wider stop, probably even wider than 1,352.   For now, for this first “survival” trade, it was a good trade.  The plan was executed well.

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