Anantomy of My Chart and Overall Trading Strategy

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I want to take a few minutes and go over my chart and my overall strategy for trading gold futures             .

Bollinger Bands - I use 3 BBs, set to a standard deviation of 1, 1.5 and 2. I pay particular attention to when price pierces the red 2.0 band. I am also always aware of price in relation to the simple moving average , the orange line in the middle of the bands.

As good as they are, BBs need to be used with a good cycle oscillator. This is critical to differentiate when price is trending and when price is reversing. For this, I use the Stochastic RSI . I have tried many oscillators but have found that the Stoch RSI , which is technically an indicator of the RSI indicator, works great with the BBs.

My strategy is pretty simple. Using a daily chart , I enter a trade after price has pierced the red BB and then pulled back, looking for a reversal candle. But by itself, this strategy will create many false entry signals and that's when I turn to the Stoch RSI . For a long entry, I want the green Stoch RSI line to move above 20 and cross the magenta line. For a short entry, I want the green Stoch RSI to move below 80 and cross the magenta line.

As examples, let me walk you through my logic for my last 2 trades. 12 days ago, price pierced the lower red BB (see arrow 1). This was the first sign that Gold             was reaching oversold territory. But if you look below at the Stoch RSI , both green and magenta lines are clearly below 20 and are showing no indication of a change to an upward cycle. So no buy signal yet. The next few days had a mix of red and green candles but since the Stoch RSI was still below 20, I did not enter long. Finally, after 6 days, there were 2 solid green daily candles and the Stoch RSI moved above 20 with the green signal line crossing the magenta line. I entered a long trade at #2 at a price of 1324. I closed the long at 1344 for a 20 point profit.

Now, there were 2 main reasons why I closed the trade. First, you can see that at #3 on the chart, price tried 3 times to move above the higher cyan line (1.0 Std Dev) but failed.You can see how the upper candle wicks poked above the cyan line. To me, this was a big sign of weakness. Second, the Stoch RSI green line hooked below 80 and crossed the magenta line. Not only was the price action             telling me that upward movement was not going to happen, but the cycle oscillator was confirming this. I placed my stop a couple of points above the 20 period simple moving average and was stopped out.

Just after closing the long position, at the start of the last day on the chart, I entered a short position using the same, but now opposite, reasoning. My entry price was 1341.8 and I am still in the trade.

I hope this has helped explain how my chart is set up and my basic logic for entering and exiting trades. I look forward to your comments and questions.

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