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Swing Trading Gold


 -- Published: Wednesday, 2 April 2014 | Print  | Disqus 

By Adam Lemon

It is not necessary to delve into the realm of wild conspiracy theory to arrive at a belief that the price of gold is subject to some manipulation. Considering how central and controversial the respective roles of gold and the fiat USD are as major world currencies, it would be naïve to assume that fiat stakeholders do not have both strong means and strong motive to manipulate the price of gold in USD. During times of economic crisis, the price of gold has historically risen dramatically, which tends to highlight the weakness of a fiat USD. Could it be that the Federal Reserve acts to suppress the price of gold from reaching psychologically dramatic highs, as far as it can?

Professional speculators are widely aware of the manipulation of the gold price, and are able to profit from it. It would be logical to assume that this state of affairs signifies that performing the manipulation is extremely important to the manipulators, who have far more important concerns than fleas taking bites off their backs. If so, traders are presented with a strong opportunity to profit.

Retail traders who prefer the Forex to the stock market are very attracted to trading in gold, for several reasons:

1.    Gold is a valuable metal that can exert a strong emotional pull.

2.    In recent years the gold price has shown enormous volatility, far greater than any feasible currency pair.

3.    Gold is seen as a currency and part of the Forex world.

4.    It has been possible during recent years to make exceptional profits trading gold with very simple trading strategies.

5.    Since the Swiss National Bank adopted a deliberate strategy of weakening the CHF, there is no currency that can fulfil gold’s perceived impregnable role as a “store of constant value”.

The theory of deliberate suppression of the gold price by a cartel led by the US Treasury is detailed in gold analyst Dimitri Speck’s recent book “The Gold Cartel”. He argues that there is a natural upwards pressure on gold that is met by fairly effective selling intervention that drives the price down. He adduces a large amount of statistical data to try to prove his contentions.

It is notable that gold has moved dramatically in both directions during recent years. The movements have been so sudden and dramatic that it has been possible to make extraordinary trading profits just by following the direction of every swing reversal on a time frame as short as four hours! Simply by following any such single bar reversal with momentum, the following profits could have been made on a GMT basis over a 3 year period beginning in 2010:

Long Trades

Reward/Risk Profit Target

Expectancy Per Trade

1

4.87%

3

4.30%

5

10.03%

10

16.62%

25

19.20%

50

16.91%

100

44.70%

Short Trades

Reward/Risk Profit Target

Expectancy Per Trade

1

14.73%

3

10.34%

5

12.85%

10

31.03%

25

128.21%

50

267.71%

100

501.57%

It is absolutely remarkable that there has been a positive edge in trading single intraday bar reversals, even with extremely conservative profit targets and a stop loss just beyond the other side of the reversal bar. It is almost impossible to find this kind of phenomenon over any sustained period of time in any other widely traded instrument.

Another anomaly is revealed when time of day is factored into the previous statistics: it is most profitable to buy or sell gold with small stop losses during relatively illiquid market hours. The greatest statistical edge for trading in either direction arrives at 4am GMT.

Gold does attract some rather wild theories, but considering that most physical gold is under the control of national governments, and the interest all modern governments have in maintaining fiat currency systems, is enough to give pause for thought.


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 -- Published: Wednesday, 2 April 2014 | E-Mail  | Print  | Source: GoldSeek.com

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