Strategy on Gold (
Part One)The basic strategy with gold is to go long. Of course, there’s a lot more to it than that, but that’s the main focus. However, the “go long” aspect is the long-term outlook. The short-term can include shorts, so I do short gold during certain periods and at certain prices, as well. At times, this can become the dominant strategy.
I thought about the best way of laying out this strategy, and just decided to explain it step by step in as much detail as possible. Then I’ll try to address some specific situations that might arise.
Step One: Find the ALL-TIME high for gold, and enter it into a spreadsheet.Look at your platform and go to a large time frame and locate the highest point. As of this writing, my platform shows a high of $1,265.05. If you want to duplicate the spreadsheet I have at the moment, you’d enter the words: “All Time High” in F18, and then you’d enter the dollar amount above in H18. (Otherwise, in my Journal I have it attached for download, as well as this entire write-up).
Step Two: Calculate your list of potential “Buy” entry pricesRight now, in A1 I have a column title called “In Price.” In A5 I simply pull over the value in H18 as a cell reference. In A6, I have =0.99*A5. I then copy that formula down the column.
What is this doing? I am setting potential entry prices based on the all time high. Every 1% decline from the previous price point is a potential buy-in point (or shorting entry level).
[I started this method by trading every $X, but realized as the price increased that the percentages were different enough that I preferred the idea of trading on a percentage gap. At $900, a $10 gap is significantly different than a $10 gap at $1200. I prefer to compare a $9 gap to a $12 gap between entry prices, and for setting take profit levels.]
Step Three: Build a column for the trading plan in Lot sizeIn B1 I have a title “Lots”. Starting in B5, for now, just put in a zero and copy down. We’ll get to the actual trading plan later on. Note that a micro-lot is 0.01 lots.
Step 4: Determine Take Profit targets for each entry pointThe C column is entitled “Take Profit.” I’ll give you the formulas and then explain what I’m doing.
Leave cells C5-C9 blank. In C10, enter: =(A9-A10)*0.25+A10.
Then, in C11 enter: =(A10-A11)*0.25+(C10-A10)+A11. Copy C11 down the rest of the column.
These formulas are what I’ve come up with based on observation and my trading experience over the last few months. There well may be a more optimal schedule of take profit levels to employ. But let me explain the rationale.
The first 5 cells in the column are blank because I don’t want to go long so close to the all time high. So, I will be leaving the lot size at zero on these rows and there is no take profit. The take profit level is set to increase in size as price goes lower. Basically, my theory is that the lower price retraces from the high, the more we can expect it to rebound back toward the high. Starting in cell C10, I set take profit to be 25% of the distance between the previous calculated potential buy-in point in A9 and the current one in A10. It’s a small profit target, but I’m anticipating more price action up and down, and almost have a scalper mindset at this level.
Starting in cell C11, the take profit increases from a pip standpoint, but is at a lower price than in C10. What I’m doing here is calculating 25% between current and prior just like in C10, but also adding the pips from the C10 calculation to increase my take profit.
This may seem confusing, but let’s just show the example based on the current high of $1265.05:
(1) Potential Entry 1 = $1265.05
(2) Potential Entry 2 = (1) x 0.99 = 1265.05 x 0.99 = 1252.40
(3) Potential Entry 3 = (2) x 0.99 = 1252.40 x 0.99 = 1239.88
(4) Potential Entry 4 = (3) x 0.99 = 1239.88 x 0.99 = 1227.48
(5) Potential Entry 5 = (4) x 0.99 = 1227.48 x 0.99 = 1215.20
(6) Potential Entry 6 = (5) x 0.99 = 1215.20 x 0.99 = 1203.05
(7) Potential Entry 7 = (6) x 0.99 = 1203.05 x 0.99 = 1191.02
(8) Potential Entry 8 = (7) x 0.99 = 1191.02 x 0.99 = 1179.11
And so on…
Looking at the above entry points for long positions, I do not go long on the first 5. Thus, my first potential buy-in point occurs at (6), or 1203.05. I am then a buyer all the way down after that point. Lot sizes will be determined based on available capital.
The take-profit calculation described above would be calculated as follows, starting at the first buy-in point of 1203.05.
(1) 0.25 x (Entry Point 5 – Entry Point 6) + Entry Point 6 = 0.25 x (1215.20 – 1203.05) + 1203.05 = 1206.09.
(2) Take Profit Differential in (1) + 0.25 x (Entry Point 6 – Entry Point 7) + Entry Point 7 = (1206.09 – 1203.05) + 0.25 x (1203.05 – 1191.02) + 1191.02 = 3.04 + 3.01 + 1191.02 = 1197.07
(3) Take Profit Differential in (2) + 0.25 x (Entry Point 7 – Entry Point
+ Entry Point 8 = (1197.07 – 1191.02) + 0.25 x (1191.02 – 1179.11) + 1179.11 = 6.05 + 2.98 + 1179.11 = 1188.14
And so on…