Bulls in yellow metal edgy at 38.2% Fibos – CCS to trade

FX:XAUUSD   Gold Spot / U.S. Dollar
190 0 13
Technical Inference:

Although the bulls rejected at 38.2% Fibonacci retracements on monthly chart at around 1375.04 levels (see monthly charts).

On the flip side, the current prices testing supports at 1323.30 levels (7EMA).

Weekly RSI has been converging downwards with every dip ever since it has dropped from the resistance levels we referred above (1375.04). But this has been adverse to the monthly RSI signals, the leading indicator is still indicating strength in bull rallies.

Most importantly, although the prices have been dropping from last two weeks, it has still remained above DMA and EMAs on both weekly and monthly graphs.

However, it has shown a considerable jump from last 2-3 months that has taken the current prices above 7 & 21EMAs along with the convergence shown by leading oscillators and MACD has triggered off bullish environment, which means even though the prices were seeing little skepticism at current juncture the major trend is most likely to encompass medium term uptrend with short-term obstacles.

We hope that you understand it would be unfair to expect a steep recovery in the long lasting bear trend that we've seen since October 2012.

To conclude, the short-term trend seems little struggling, the prices can take off if it breaches hurdles of 1250 and 1284 levels.

Option trading tips: Credit Call Spread ( CCS             )

The rationale to deploy this strategy is that we want to capitalize on short-term downswings and to favour long-term uptrend.

How to execute: Keeping the above technical factors in mind, it is advisable to go long in 1M (1%) OTM 0.36 delta call while writing 1W (1%) ITM             call with positive theta and delta closer to zero (both sides use European style options), this credit call spread option trading strategy is recommended when the gold             spot price is anticipated to drop moderately in the near term and spikes up in long term.

Trade expects that the underlying gold             spot price would drop to ITM             strikes on expiration and thereafter bounce back again.

Thereby, you are speculating the gold's struggle in the short run by shorting, and hedge any dramatic upside risks in the long term via longs in OTM strikes which is why we've used diagonal expiries.

Margin: Yes for ITM             shorts.

Risk/reward profile: The return is limited by ITM             shorts. No matter how far the market moves below that point, the profit would be the maximum to the extent of initial premiums received.

If the underlying spot gold             price rises above the strike price of the higher strike call at the expiration date, then the bear call spread strategy suffers a maximum loss equals to the difference in strike price between the two options minus the original credit taken in when entering the position.
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