TREND following STRATEGY

Written by Chief Strategist | 05 September 2009

A Combination of Gold & US Dollar Index Guide 

Sequential Process :
 
As GOLD have proven to have a technically sound higher bottoms as shown here on the weekly already indicated the Trend is Up from the past months that could break on the high side in-spite of a lowering top which gives the strong resistance levels.

As brokern down in a daily segment as of August 20, 2009 showing a more clearer pisture of the daily trend and price swings that Gold does on a daily basis. Proper positioning on the way up is more of a traditional buying strategy though; it is best to have with it enough volumes and a follow through price movement; the directional trend which was established finally broke the USD 960.00/ troy oz. levels as of September 03, 2009 to as high as USD 994.80 high price for the day.

As of August 24, 2009

On Gold as . . .

As a hedge and a strategy, the trading technique is quite simple in a way that as the trader follows the directional movement of the commodity in line with the fundamental reasons way Gold may be a good spread for risk aversion or even appetite as it benefits from a depreciating US dollar. When such trading analysis is in-sync with the technicals as configured in this examples of the Gold chart ( fig.1a) it is just a matter of time when Gold would have broken the psychological resistance price of USD 960.00/ troy oz. for the past few weeks when the roller coaster ride on Gold took place.

The low price level from the week of August 21, 2009 at USD 929.10; a second (2nd) low price levels of USD 943.20 and when the signs of breaking the mid-range price of USD 954.50 these were the true signals of the momentum that Gold is about to break to the high side of the chart. In addition, the sustaining and build of volumes on the futures market as reported by the Chicago Mercantile Exchange ( CME ) on their Volume, Open interest reports (VOI) every end of the week's trading; clearly showed how momentum is simultaneously building proven with the numbers to prove this claim.

Admittedly, it takes more than simply a single or a couple of technical tools such as the % range, RSI, Stochastics or even the Fibonacci to determine the entry and exits strategy of a trade, although it helps a great deal. but as a word of caution, these signals are barely as reliable because they provide the signals to buy or sell after the confirmation of a cross-over.

As of August 28, 2009

Our responsibilty is to provide and have a foresight of a trend rather than looking / acting or even executing a trade based on a signal after the fact. If all signals were true then every one should have been a winner and rich by now. Again, it is not scarcism but the reality is that it takes much more to trade the FX market or Gold even from these examples alone. They are merely guidelines as they may occur every now and then as most of the traders find out.

When the momentum start to build, the market either in the Foreign Exchange rates or the commodity such as Gold now becomes a reinforced trend that needs to be respected. As the actual confirmation on the movement and directiona price action upwards are shown above on this chart dated the 4th of September 2009. As the reinforced Gold market is now a full blown market pace setter for the precious metals market. A more positive breath from increase investors as the volumes will confirm, that most FX investments have been alternating strategies while waiting for the FX market to find its footing. As the past few days has been directionless as other traders have even reported on their daily FX reports.

As of September 03, 2009

As of September 09, 2009

This type of scenario increases the chances of a much higher volatility as it is a twin brother of higher volumes. Or a more technical term would be a parallel part of the trading market. A clearer example is also the reflection of the mirror image between the USDX and the European Majors, although the past few weeks have been a battle between the Euro. Pound and the Japanese Yen as most interbank traders were utilizing the cross rates as a defensive strategy to limit the strength of the Pound and the Euro who happens to be the lead currencies for so many months.

This types of charting Analysis should be well researched and studied. Knowing the basic of the candlestick Theory is only a small part of the trading process. As every trader sees the same bars, formation and configurations of a hammer, doji, dark clouds, double tops and many others when it is shown means the same as defined in the text books or seminars attended. There is more than meets the eye specially on the Candlesticks. It has been used ever since in Asia for the past 5 decades and there are a lot of Western types of interpretation and books written about it by some technical traders in the industry. but this will be in the other articles that we would also be presenting in the long run.

US Dollar Index . . .

The Key positioning of the USDX is the ral guide in evaluating the value of the US Dollar versus a basket of Foreign Exchange rates as shown here on this Daily Price chart; as of September 09, 2009.

As of September 09, 2009 

As of August 24, 2009

Emphasis on . . .

The US dollar Index as presented in one of our Hubpages: US $ Index - Best Technical Guide holds the key element in trading the FX market. As we can not emphasize more than how we already stated that if only proper due diligence is made in researching and studying the behavioral patterns of the US dollar; it will definitely provide the signals of where the true market sentiments are.

As this guide also doubles-up as an indicator is " truly the best kept trading secrets of most strategist that deals both the financial futures and the Spot FX market ". While the US Dollar for November would be expiring soon as a cross-over between the old and the new contract month of December will provide a picture of clarity as to the near term outlook for the US dollar. As the continuing USDX spot which is not tradeable remains at a crucial price between the 79.00 high basis point and the low of 77.30 basis point established this August.

This is just one of several angles that one needs to consider while trading the Foreign Eschange Market. Please do not limit yourself in looking at the single currency since it is the only one your trading. As other currencies and other fundamental factors do influence the performace from one another. But this information is already said and done. It serves as an important reminder that can only help in better understanding the intricacies of this volatile market.

As the popular saying goes... ' the trend is your friend ' and never go against a major trend! Have an appropriate strategy, investment funds that can leverage strategies whenever necessary to avoid risk of loss.