Gold’s Market Trend Before and After
The use of gold as a storehouse of value has been around since ancient times and most likely will still be around when the book you hold in your hands crumbles to dust. That being the case, approaching gold investing intelligently is paramount to any trader’s success. Failing to recognize the winds of change will most assuredly have you holding the bag when gold is no longer fashionable and missing out when it is.
Before
Can gold do it? The candlestick makes it appear as if gold may actually turn around. From an inverted hammer at the top, to a spinning top, to a hammer, the candlesticks are reflecting the market's volatility. Couple that with the collapse of the last rally, and the slow steady pace gold has had to get back, there is the possibility of a breakout to new highs. With so much uncertainty, would a straddle at 730 be wise? What about a strangle? Buy a call at 740 and buy a put at 720, just outside range, but well within the market’s average true range (ATR). Would it make sense to sell a naked put and collect the premium under these circumstances?
In making a decision there are two potentials. If the market moves up, the next point of resistance is in the 800s and there is the potential to make $7,000; if the market drops, it apparently has support at 685 that would net you $4,200. So no matter which way it goes, you should not be risking more than $2,100 to $3,000. An outright futures contract may not make the most sense.
After
Gold drops through the 50-day MA and falls back down to the 685 level of support and begins to turn around. A strangle, in two of the money options, would have probably been the best bet based on the risk/reward profile.
