Gold Following A Downward Path

Gold bars in front of a price chart.
.22 Apr 2024
author avatar image Andreas Thalassinos

Table of Contents

Briefing on Gold

  • Financial instrument: Gold
  • Timeframe: H4
  • Session: American
  • Trend: Down
  • Trend Confirmation: Price below the Alligator
  • Momentum:¬†Awesome Oscillator below zero
  • Support Levels: 2338.38 (S1), 2325.88 (261.8%), 2284.34( S2)
  • Resistance Levels: 2378.02 (PP), 2390.16 (61.8%), 2431.79 (S1)
  • Trading Strategy: Sell on Down Fractals

Introduction

Gold versus the US Dollar has been in a downward trajectory since April 22, when prices closed below the Down Fractal of 2372.88 and closed below the Alligator. This breakout fractal below the Alligator signaled the beginning of a downward trajectory for the XAUUSD. Employing technical analysis, particularly the Alligator indicator, we aim to discern potential entry points, protective stop loss levels, and three profit-taking levels for traders considering positions in this commodity.

Alligator Indicator Overview

The Alligator indicator, created by Bill Williams, comprises three smoothed moving averages with distinct periods:

  • Jaw (blue line): 13-period SMA shifted 8 bars into the future.
  • Teeth (red line): 8-period SMA shifted 5 bars into the future.
  • Lips (green line): 5-period SMA shifted 3 bars into the future.

Trend Identification

Gold following a downward path
  • The Alligator indicator assists in identifying trends:
    • Up Trend: Lips above Teeth, Teeth above Jaw.
    • Down Trend:¬†Lips below Teeth, Teeth below Jaw.

Potential Entry Points

  • Sell Entry:¬†When the Lips cross below the Teeth, and the Teeth cross below the Jaw, it suggests a potential downtrend. Consider entering a sell position upon a confirmed break below a significant support level.
  • Buy Entry:¬†Conversely, if the Lips cross above the Teeth and the Teeth cross above the Jaw, indicating an uptrend, consider entering a buy position upon a confirmed break above a notable resistance level.
  • Sell at 2337.36:¬†A potential Sell entry is seen below the current low price (at the time of writing).

Protective Stop Loss

Mitigating risk is crucial. Set a protective stop loss to limit potential losses if the market moves against the trade.

  • Sell Trade:¬†Place the stop loss slightly above the Lips, Teeth, or Jaw.
  • Buy Trade:¬†Place the stop loss slightly below the Lips, Teeth, or Jaw.
  • 2383.45:¬†The initial stop loss for a potential Sell trade is set above the Lips at 2383.45.¬† Subsequently, trail the exit above the Lips.

Potential Profit Levels

Establishing profit targets is essential for effective risk management:

  • 2325.88:¬†The first profit target is set at 2325.88, where significant resistance is expected. The value aligns with the 261.8% Fibonacci Extension.
  • 2284.24:¬†The second target could be set at 2284.34, aligning with the S2 weekly Pivot Point.
  • 2284.34:¬†The third target stands at the S2 support, using the weekly Pivot Points calculation.
  • Above Lips: Trail the potential profit target above the Lips.

High Impact Economic Events

  • Tuesday, 07:15 am (GMT+0): French Flash Manufacturing PMI (EUR)
  • Tuesday, 07:15 am (GMT+0): French Flash Services PMI (EUR)
  • Tuesday, 07:30 am (GMT+0): German Flash Manufacturing PMI (EUR)
  • Tuesday, 07:30 am (GMT+0): German Flash Services PMI (EUR)
  • Tuesday, 08:30 am (GMT+0): Flash Manufacturing PMI (GBP)
  • Tuesday, 08:30 am (GMT+0): Flash Services PMI (GBP)
  • Tuesday, 01:45 pm (GMT+0): Flash Manufacturing PMI (USD)
  • Tuesday, 01:45 pm (GMT+0): Flash Services PMI (USD)
  • Wednesday, 04:30 am (GMT+0): CPI q/q (AUD)¬†
  • Wednesday, 04:30 am (GMT+0): CPI y/y (AUD)
  • Wednesday, 04:30 am (GMT+0): Trimmed Mean CPI q/q (AUD)
  • Wednesday, 03:30 pm (GMT+0): Advance GDP q/q (USD)
  • Wednesday, 03:30 pm (GMT+0): Unemployment Claims(USD)
  • Friday, Tentative: BOJ Policy Rate(JPY)¬† ¬†
  • Friday, 03:30 pm (GMT+0): Core PCE Price Index m/m (USD)

Conclusion

In summary, Gold, XAUUSD, is following a downward trend below the Alligator. All three lines, namely Lips, Teeth, and Jaw, are wide open and pointing downwards, indicating that the downward trend is expected to continue. As geopolitical tensions ease, investors look elsewhere for safe-haven assets. Traders can use the Alligator indicator in technical analysis to identify trends, potential entry points, and profit-taking levels in the precious commodity. However, it’s important to complement technical analysis with fundamental factors and market sentiment for a well-informed decision-making process.

author avatar image
Andreas Thalassinos

Experienced educator with a demonstrated history of working in the financial services industry. Skilled in Technical Analysis, Market Risk, Asset Management, Stock Market, and Trading Systems. Strong professional with a MSTA by Society of Technical Analysts (UK), CFTe and MFTA focused in Master of Financial Technical Analysis from International Federation of Technical Analysts (USA).