Gold Break Out Strategy

Lets get straight down to the strategy. This strategy is a very simple concept but it is important you manage your risk. You must also know your risk tolerance as you may have a few false break outs and when you give in that is when the break out will occur. So as simple as the strategy might seem, be prepared have your risk well planned out. Here is a tip on how to calculate the average risk.

As we said earlier in the gold trading strategy post a break out will occur when the market has gone quiet and you are anticipating news of data that could move the market. In this you calculate the range of Gold and draw a line above the resistance and one below the support. You will place a break out order just above or below these two lines. Again your risk is if traders do a false break out, that is they test the support or resistance lines, but fail to break these.

As you can see from the picture above the prices stay in the range and try to break it a couple of times. Until there is a break. This break continues until it finds the next support and resistance level.

As you can see form the above scenario this strategy can be quiet profitable and tradable.

On the other hand here is an example of a sudden movement that is completely unexpected. This was during Ben Bernanke’s testimonial in front of congress, as investors were waiting for Bernanke to do more quantative easing, he disappoints investors. By Bernanke not pledging for more stimulus traders ad investors started taking their money out of the safe haven and inflation hedge, “Gold” and started moving their money into more riskier assets. As you can see in the graph below Gold was building up towards a pledge of more stimulus. It had been moving up from the 20th of February, but at the hearing it suddenly dropped 5% after Ben Bernanke’s comments. This had been the biggest drop in 3 years.

In this scenario a Gold Break Out Strategy

would have been very profitable. This was a scenario when you know that Bernanke is expected to speak, you draw your break out lines and you place our order. But Be carefull you are not caught on the opposite side of the trade. Your stop loss could get slipped.

Next Strategy I will discuss is the Gold Pivot Point Strategy

or you can return to Simple spread betting strategies

Now we will show you completely the opposite of what we showed you earlier. This is a Bollinger band breakout strategy. This spread betting strategy works especially when prices have been trading in a range and there has been no decision on direction. Then suddenly they move either lower or higher and break out of the range.

The Squeeze: This strategy is also known as the squeeze, as prices will start trading in a range before the breakout, the Bollinger upper band and lower band will squeeze

Look at the spread betting example of Xstrata (XTA.L) below:

Bollinger Band Break out – LONG

Traders trade the prices long when prices have gone into a rage or consolidation, the bands squeeze and prices break to the upside closing above the bands.

Bollinger Band Break out – SHORT

on the other hand a short occurs when prices break out of the squeeze to the downside closing below the bands. In this case, as we can see the spread betting example above, Xstrata broke it’s range to the downside, the prices closed below the band and the prices continued lower.

How to control your risk. This depends on your risk tolerance. Some traders, with a higher risk tolerance put their stop above the range, others with a lower risk tolerance would put their stop loss just above the middle of the band

Measuring the strength of a trend

This same method can be used to measure the strength of a trend. Once the break out occurs and prices remain in the top half or bottom half of the Bollinger Band. Not crossing the middle line, this indicates that the strength of the trend is strong and it likely to continue.

Previous: Bollinger Bands Mean reversion

Tag: breakout strategy

Gold Break Out Strategy

Gold Break Out Strategy

Bollinger Bands breakout strategy (the squeeze)