At the moment we’re at a lot of inflection points in the markets. Everything points to difficult trading conditions ahead for the next few weeks.
However, I’ve been keeping a very close eye on the price action in spot gold (XAUUSD) and there’s definitely something brewing right now. I think there’s some excellent reasons to be going short on this asset very soon.
Even though the price action in the yellow metal has been very erratic lately, we’re getting close to a major break-out on the daily, weekly, and monthly charts patterns.
In fact, we could be looking at a drop worth thousands of pips. One thousand pips alone is worth $10,000 on your original $1,000 if you’re trading one lot at a time.
So what’s coming up is likely to be very significant and very profitable. I know a good move when I see one: with my 23 years of trading experience on Wall Street, I was ultimately responsible for 1,200 trading accounts and 120,000 trades.
I’m going to give you a price to consider using as a short entry later in this article, but first let me illustrate why this is the best trading opportunity available in the immediate future.
Let’s start with the monthly chart:
As you can see, prices have been prices have been contained inside the most recent monthly bar. That makes this month’s bar (nearly complete) an inside bar.
An inside bar means that the energy from the earlier bars is being “coiled up” and stored, just like in a compressed spring. When the spring releases that energy it often means an explosion out of the current price range.
There’s another bullish factor here: higher lows in the recent monthly action. There’s been an uptrend. Another bullish look:
The double bottom and the breakout of the symmetrical triangle also suggest that the energy in that compressed spring might blast upward. So why not buy?
Because despite all that bullishness, the XAUUSD price has been unable to set any new highs for quite some time. It keeps smacking up against the 1360 level and reversing (more on this in a moment).
So even though matters look promising for a buy at the monthly chart level, we need to dig down a bit more to get the true picture.
That’s why we need to take a look at the weekly chart.
We can see the same double bottom we spotted on the monthly chart. Plus there’s another bullish indicator: the ascending broadening formation that’s been in place for the last 12 months.
Normally an ascending broadening formation is bullish. The expanding price range often suggests higher prices in the future. But I’m not quite ready to jump in on the long side at all.
That’s because there’s some serious resistance at the top of the formation. Resistance so strong that it’s stalled the normal wave cycle toward the upper trendline.
In fact, there’s a triple top at 1360. The price has failed the last 3 times it’s hit that level.
Plus we’re seeing an inside bar in the most recent week too. Just like on the monthly chart, that means there’s “energy” being stored inside to be released later — possibly very explosively.
So what does the daily chart tell us about the direction of that possible explosion?
As with the weekly chart, we see an ascending broadening formation here. The wide swings as this pattern began were very profitable last year.
We made a lot of pips with those. But the swings have been a lot smaller this year as they keep hitting the 1360 level and bouncing off … hard.
In fact, we’re seeing key reversals at 1360 over and over again. A key reversal is when the price hits a high and then reverses to close on the low. It’s very bearish and has stopped each mini bull-run in XAUUSD over and over again.
So we’re currently in consolidation with smaller waves and swings than a year ago.
But with the upside running out of energy (it’s being coiled within inside bars rather than being applied to break that 1360 level), the most likely direction is down.
If you want to be super-safe, then wait until the price drops below 1308 before going short. That will give you some momentum as the price falls.
But there’s another way to make a safe play on shorting XAUUSD too.
You could get short on a rally before the dip with a limit order. In that case I’d suggest trying a short order (limit) at 1321.
Either way, confirmation of the current price patterns will be a breach of the neckline at 1308. and that confirmation could open up a huge move lower.
I believe we’ll see 1282 to start with, followed by a further drop to 1200 and into the 1100s too.
Literally thousands of pips in short side XAUUSD profits are there to be had. If this really gets going, that decline is going to be VERY profitable for us.
So why not do it the Pattern Trader way? You get the benefit of spotting the biggest potential moves before they unleash all that pent up energy for huge gains.
It’s how I made my name on Wall Street.
See for yourself exactly how we’re going to play this huge move as a Pattern Trader. Prepare yourself with my LIVE 2-Day Bootcamp where I’ll demonstrate exactly how to make currency trades just like the one I’ve outlined here, including my “Lazy Trader’s” 5-step execution plan that pulled in more than 9,000 pips last year.