Dealer Sharks Rule With A Slow Day In The Trading Pool
Nowhere to run and nowhere to hide in XAUUSD [with any position] when volatility goes out for a break; just a dealer stop hunt against retail accounts. Wash the markets with stuffed orders, rinse the retail accounts of a few bucks, and repeat the process as often as necessary before you head home.
Here is the pertinent data from the XAUUSD Excel Spreadsheet from 10/2010 – 10/2013 [160 weeks]:
1) Low value < $5 (50 pips) = 26% of trading weeks,
2) Low value between $5 - $20 = 55% of trading weeks,
3) Low value > $20 = 19% of trading weeks,
4) High value < $25 = 24% of trading weeks,
5) High value between $25 - $35 = 17% of trading weeks,
6) High value > $35 = 59% of trading weeks.
I have linked in the "File Download Links" section the raw spreadsheet data if you are interested. If you have trouble with www.4shared.com in getting the file, email me at email@example.com and I will send.
If you take the total dollar amount [3 years, or 160 weeks] for the high values and low values, they total $ 7830.16 [high value] and $ 1913.05 [low value].
That is a ratio of 4.09, proving the validation of the algo model for profits.
The major conclusions are:
1) The majority of the time [55%] the low value will be between $5 - $20, and
2) 76% of the time the high value will be over $25 for the week.
It is an absolute imperative that you follow the trading signals [yellow/plum line and/or exhaustion lines] once in a position, as this market can move violently very quickly. Alternatively, support/resistance lines very near the crossover can also be used. If we take a loss, it should be in the range of $2-$4 per oz.
Our goal is simple; lose money on a 1 lot [10 OZ], and make money on multiple lots when the market moves. Make no mistake, you cannot scalp this market; it does us no good to make $0.50 8 times in a row and then get whacked for an $8 buck loss on the ninth trade. [By the way, margin on a 10 oz. lot @ Forex-Metal is about $44 – this is far lower than futures margins at the CME]
Our greatest risk to account capital is at the beginning of the expansion of the high value [no matter when that is]; this is the reason we start with 1 lots. If the high value isn’t going to expand, I don’t want multiple lots on for the initial position that I have to liquidate or hedge up. I don’t want to be my own worst enemy by either buying into a rising market or selling into a price decline if we are wrong. Even if you consider yourself a large trader, be smart and leverage up from winnings with your minimum trading lot.
Doubling or tripling up on a losing position because you think it can’t reverse gets you back into the “pudding business” faster than just about anything. We simply deal with a manageable small loss on a 1 lot and move on.
Again, I recommend strongly you follow a “rainy week fund” for those weeks where XAUUSD goes into hibernation. It doesn’t happen that often, but when it does, the last thing I want you doing is upping your leverage and lots and getting stopped out unmercifully because you need money to pay the bills and live life. Set one up and contribute to it with at least 10% of what you withdraw.
Have a great day everyone.