Gold Futures, Daily Chart

In this post I’ll show how to use the hourly chart in conjunction with the daily chart to make a trading decision. The trend in the daily gold futures flipped down on June 23rd, so since that time it has been smart to focus on playing GC from the short side. You can’t just get short willy-nilly, you have to drop down to a smaller time-frame to pick your spots.

Gold Futures, Hourly Chart

When I see the trend flip up on the hourly at the same time that I know the daily trend is down, I start to think about picking a spot to get short. The swing lows on the hourly chart become the key levels that I look to get short under.

The instant I’m filled short, I place my protective buy-stop cover above the swing high, and then trail the stop to protect myself, first to breakeven and then lower to lock in any profits. A handy target to expect price eventually to reach is a key low, which in this case was 343.30, the swing low on June 27th.

It’s one thing to walk through these trades using hindsight, and another thing to execute them in real-time. It’s easy to believe in the correctness of trading with the trend, but it’s often difficult to put it into practice, especially for those who get a kick out of “bucking the trend.”

“The alternative to trend following is predicting. This is a trap that nearly all traders fall into. They look at the … trading problem and conclude that the way to be successful is to learn how to predict where markets will go in the future. There is no shortage of people willing to sell you their latest prediction mechanism. We all want to believe that predicting is possible because it’s so darn much fun to make a prediction and be right.” — Bruce Babcock