Trading the Range in Gold

By DailyFx | February 14, 2013 AAA

Article Summary: Gold has been trading in a well-defined range for over 16 months. As price approaches support traders will look for potential buy entries.

Gold, (XAGUSD) has been one of the markets strongest trends for the better part of a decade. However, since the end of 2011 the price of gold has been trading sideways in a modest range, neither pressing new highs nor breaking to fresh lows. Instead of being deterred by a sideways market, traders can switch to a range trading plan and begin looking for market opportunities.

The range on Gold can be seen below on a daily chart, and has been defined by clear levels of support and resistance. Resistance has been created near 1,800 by connecting a series of highs from November, 2011 through November 2012. Likewise, support has been identified below by connecting the current lows on the price chart residing near 1,550. Once these prices are found, traders can begin looking for opportunities for trading.

Learn Forex - Gold Support & Resistance

Trading_the_Range_in_Gold_body_Picture_2.png, Trading the Range in Gold
(Created using FXCM's Marketscope 2.0 charts)

Trading the Range

Range trading can be one of the easiest but most effect methods for approaching the market. Once a range has been identified traders will look to either buy support or sell resistance levels for as long as the range continues. There are many ways to plan to enter into the market, but the most straight forward method is through the use of entry orders. Entries in a range require orders to buy at price support or sell current resistance levels.

The primary benefit of using an entry order in this scenario is that it allows us to set an order away from present market price that will execute when the price we select becomes actively traded in the market. This is beneficial to trader that can't always be monitoring price charts. Regardless if you are in front of your trading platform or not your order is ready for execution! All that is needed to complete this trading idea is a stop and take profit point.

Learn Forex - Gold Range

Trading_the_Range_in_Gold_body_Picture_1.png, Trading the Range in Gold
(Created using FXCM's Marketscope 2.0 charts)

Stop and limit placement doesn't have to be tricky when trading in a range bound market. Stop losses when either should be placed below support, or above resistance. This will allow us to exit a position in the event of a breakout. In the example above, if price breaks out to lower lows, our range has been nullified and it is in our best interest to close our open positions. Limits can be extrapolated by looking for a full or partial extension of the range to either support or resistance levels depending on your buy/sell preference.

---Written by Walker England, Trading Instructor

To contact Walker, emailwengland@fxcm.com. Follow me on Twitter at @WEnglandFX.

To be added to Walker's e-mail distribution list,CLICK HEREand enter in your email information

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