Best Gold Trading Strategies

Let’s get back to our gold rush. Today we will continue to talk about the XAU USD pair and finally look at what strategy you can use in trading.

In order to choose the best way to trade, you need to understand exactly how a pair behaves in the market. If you look at a chart with any timeframe, you will notice strong intraday fluctuations within the range. This is due to the low liquidity of the instrument, and this is what will form the basis of our trading strategy.

So, what to pay attention to? Let’s take the chart with the H1 timeframe as a basis. Look for a sharp rise and then a reversal of quotes. This is your chance to trade against the trend. To confirm the signal, look for a candle with a long tail and open a trade in the opposite direction. Another confirmation of the trade should be a false break of the sideways range by the tail of the candle.

Next, you need to decide on the key levels:

Set a Stop Loss near the tail of the candle that made a false breakout
Take Profit is placed, as a rule, in the area of the nearest 2–3 candles, outlining the maximum range of the local trend.

Range-breaking strategy

Since gold most often moves impulsively in a sideways range, the main trading technique for this instrument is breakout trading. This method is most suitable for impulse traders with a sufficiently long trading experience. The fact is that the strategy is based on the correct definition of the upper and lower boundaries of the sideways range and setting pending orders in these areas.

For this strategy, the basic levels are set as follows:

Stop Loss is placed immediately above or below the boundary of the range, opposite to the point of entry into the deal
Take Profit is set below or above the entry point in the direction of the trade movement at a distance equal to the width of the set range

A couple of additional tips

We have already mentioned in a previous article that the optimal time to trade gold is between 15:00 and 20:00 MSC.

If you want to use classic trend trading strategies on gold, then charts with a timeframe of at least D1 will be suitable for you, as it is the daily candles that form the main trend of XAU/USD. Remember, however, that fluctuations on this instrument are much higher than on other currency pairs. If you do not want your trades to be closed by Stop Losses without end, set the levels further. To make the process easier, you can use the Average True Range (ATR) or “true volatility” indicator. It will tell you the best place to set the Stop Loss.

Also be mindful of fluctuations if you are trading on levels. For XAU/USD, the levels are represented as rather wide areas, which is different from other currency pairs.

An analogue to the London Bombing..

One of the simplest, but very effective ways to make money on gold, use the strategy “London explosion“, which would be more of an “American Gold Explosion”. Given the areas of highest and lowest gold activity, you can use a breakout strategy even without special skills. We will use a chart with an hourly timeframe.

What the strategy is:

We find the flat range of price movement in the period from 14:00 to 14:30 MSC. We will take it as a basis for determining the main levels.
Open Sell Stop and Buy Stop pending orders in both directions, below and above the set range.
The Stop Loss level is set at the edge of the flat, opposite to the direction of the trade.
Take Profit should be set at a distance from the width of the selected range.
At around 15:00 MSC, when the volatility on the chart increases, one of your pending orders will trigger. This may happen a little earlier or later.
We are waiting for the deal to be closed by Stop Loss or Take Profit.
If your trade is still open at 20:00 MSC, close it regardless of its outcome.

Obviously, these instructions are not a clear call to action. You can make adjustments to it based on your trading plan. The main thing is to take into account the main features of gold behavior before making any changes.

To summarize

The pair XAUUSD differs significantly from trading other currency pairs. If you want to succeed, you need to consider all the peculiarities of this instrument.

When making a choice in favor of gold, keep the main points in mind:

Periods of the pair’s activity during the day and week
Correlation with Chinese yuan, platinum and silver
Impact on several major U.S. economic news stories
Quick triggering of Stop Losses due to impulse behavior of quotes

This concludes our series on gold trading. I hope you will find here questions to all your questions and start making real profits on the XAU/USD pair.