Stopped Out!

When to Get Back into the Gold Market

by George Cocalis, Brewer Futures Group, LLC. | May 14, 2008

Print

As gold tries to gain traction and reverse its course on the upside, traders are starting to re-enter the market cautiously. After strategically placing stops on the downside and getting stopped out, the question is: where do you get back into the market? Traders are always tempted to pick the bottom of the market (or as we say in the industry, “bottom fishing”) but that approach usually leads to failure in the long term. One might get lucky once in a while and actually catch the bottom, but the probability is very low that one can catch the bottom number in a consistent fashion. In order to talk about where to get back into the market, we have to talk briefly about where one was stopped out. 

Chart courtesy of QST

The placement of stops should have two purposes: the first is obviously to get you out of the market to try to limit your losses and preserve capital, and secondly, to put you back into the market when you want to get back in. Stops should be placed where the market should technically hold and bounce from that level. This level should not be broken by any means, but if the market penetrates and closes under this level then you know that the market has changed technically and that swing and short term traders should be out of the market. Ideally the market should target the next major support level on the downside and bounce from that number, but that is not the buy at which to re-enter the market. The buy at which to re-enter is the closing price of the first level that was broken on the downside. I suggest placing buy stops above the market to enter positions at important resistance levels. By adhering to this rule you have a better chance of getting back into the market on the upside without trying to time the market and possibly missing a portion of the next upside move, for instance, such as an overnight move. The key to this strategy is to have solid support and resistance numbers. More to come…

Copyright © 2008 George Cocalis
Editorial Archive

Disclaimer: Futures and options trading involves substantial risk and may not be suitable for every investor. The valuation of futures and options may fluctuate, and as a result, clients may lose more that their original investment. The impact of seasonal and geopolitical events is already factored into market prices. In no event should the content of the following message be construed as an express or implied promise, guarantee or implication by Brewer Futures Group, LLC or any of its affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Information provided in the following message is intended for informational purposes only and is obtained from sources believed to be reliable. This information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

contact information

George Cocalis | Chicago, IL USA | Email | Website

The opinions of FSU contributors do not necessarily reflect those of Financial Sense.