XAU: Respect is Earned

OMG! it looks like gold just does not want to quit. Looking back at one of my previous newsletters we anticipated a pull back on the daily chart to find an opportunity to add to our position. The chart below is a snap shot of price action on August 22nd when we projected the pull back.

Look at that we got our pull back and follow through on our buy setup. Not only did we got follow through traders but we even got a new high. Now that is what I am talking about!!!

You are probably wondering how I was able to project that price would not only pull back but eventually present another buy opportunity. The move we got from the bulls last week took a lot of buying power to establish. Buying power that could only come from big institutions. When you see big candles or moves that clear a lot of price action on the chart they demand your attention and command respect. On the chart below you can see how I have highlighted the powerful moves established by the bulls in side the grey areas and the buy zones that have been established based on these moves by the bulls inside the blue rectangle areas. A Buy Zone is the area from the prior low of a bullish candle or bullish move to the prior high. We typically look for pull backs to the 33% – 61.8% level  inside the Buy Zone. (The same applies in reverse for a sell zone created by a move from the bears.)

Now that we understand how to identify a Buy and Sell zone, your probably asking yourself how to incorporate these zones in your trading. It is easier than you think. First you must make sure that your Buy Zone is inline with your higher time frames. If it is counter to your higher time frames then you want to make sure that there is enough upside potential to your next area of resistance. In other words you want to make sure your risk to reward is on point. Now inside a Buy Zone you will see all kind of attempts from the bears to wipe out what the bulls have established. But it is your job not to be fooled by these moves, instead you want to be patient and wait for a buy opportunity to present itself inside the Buy Zone. This can be applied to any time frame but keep in mind that the higher time frames are always going to carry more weight than the smaller ones. So that means that Buy Zones on the higher time frames are always going to be stronger than zones created on smaller time frames. Now Rule number 2 is a Buy Zone is still valid until it is wiped out from the bears completely. If you follow these few rules and respect these Zones by trading with them your trading profits will soar.