OBV and RSI and Moving Average Crossover Gold Trading Best Strategy
This learn gold trading guide will show an example of a Best Gold Strategy that swing traders can use to come up with a profitable Gold Trading Best Gold Trading Strategy. Based on the popular stocks strategy, where stock investors use volumes to predict xauusd price direction, based on the concept "Volumes always precede xauusd price", in gold market, there is no central clearing house where volumes are aggregated, so in we use an indicator that will estimate the volumes. This gold indicator is known as On Balance Volume.
This gold indicator is then combined with RSI & Moving Average Crossover Best Gold Strategy to form a Gold Trading Best Gold Trading Strategy. The Indicator settings are:
- 5 & 7 Linear Weighted Moving Average, Linear Weighted Moving Averages
- RSI 14
- OBV
Time-frame: 4 H chart
Entry Signal
Buy
- Both Moving Average pointing up
- RSI above 50
- OBV is in an upward gold trend-line or it has broken downwards trend-line
Sell
- Both Moving Average pointing down
- RSI below 50
- OBV is in a downwards trend-line or it has Broken upwards Trend-line
Exit Trading Signal
OBV gold trend line is broken
RSI gives an opposite trading signal - 50 center-mark cross-over
You can read more about writing a Best Gold Trading Strategy rules Writing Best Gold Trading Strategy Rules and Generating Signals
You can also Read about other Gold Trading Strategies: Strategies List
Example of How to generate Signals with This Best Strategy
Before looking at examples below, using the 138 pips and 177 pips profit example, you need to learn the concept of volumes precedes xauusd price and On Balance Volume technical indicator.
On Balance Volume trading indicator uses volumes to measure money flowing into gold or money flowing out of gold.
OBV indicator most popularly used for stocks analysis. The concept behind On Balance Volume is that Volume precedes xauusd price always and when it comes to analyzing the direction of a financial instrument whether a stock or a trading instrument nothing is more crucial to this analysis as understanding the volumes that are flowing in and out of gold. These volumes can be in terms of money, in Gold Trading because charts moves in ticks data, the more flow of money in gold the more the ticks data, therefore volumes in Gold Trading will measure number of tick data participating in xauusd trading.
On Balance Volume acts as a leading indicator giving a one an idea of how much buying pressure or selling pressure is moving into a gold. And because volumes precedes xauusd price then this can be used as a good technical indicator to explain the general investor sentiment.
For a Gold Trading Best Gold Strategy a one requires indicators are calculated differently. For examples our Best Gold Trading Strategy is based on
RSI - momentum indicator
MA - direction based indicator
OBV - volume based technical indicator
A Best Gold Trading Strategy like this give a good overall picture of the xauusd market movement by taking into account 3 different calculation methods as opposed to using 3 oscillators that give signals based on the same calculation technique.
The OBV will measure the tick volume of a gold trading instrument, for every candlestick. If you use the 1H chart time frame, then the volumes will measure the total volume for the 1 hour. If you use daily charts then the volume will measure the total volumes for the gold instrument for the whole day.
However, the volumes indicator does not show the direction of the volumes, only differentiating by colors for the different candlesticks, Green for Bullish Candlesticks & Red for Bearish Candles.
This is where the On Balance Volume comes in and adds a direction to the volumes & shows the overall direction that the volumes are flowing, whether into or out of gold.
Volume Precedes Gold Price
Volumes always precede xauusd price, this makes volumes a leading technical indicator. Knowing how to interpret this helps a trader make better decisions when it comes to predicting where the xauusd market direction is going to be moving to next.
When the volume rises it shows that money is starting to flow into a gold. Because volumes will precede the xauusd price, the next thing is that the value of gold will then go up. When the OBV is going up it shows there are more buyers buying gold than the sellers selling it.
When the volume falls it shows that money is starting to flow out of gold. Because volumes will precede the xauusd price, the next thing is that the value of gold will then go down. When the OBV is going down it shows more trading volume is going short than long.
Subsequently when a downward gold trend line of the OBV is broken it shows that sellers are starting to take profit and close their xauusd trade orders.
Likewise when the upwards trend line of the OBV is broken it shows that the buyers are starting to close their long positions and take their profits.
Because the On Balance Volume will add direction to the volume and form a general direction, a trader can compare the two, the xauusd price direction and the OBV direction. The direction of these two should correspond but when there is a disconnect between these two then one should pay attention to know when to exit the xauusd market or when to open an order.
On Balance Volume is a leading indicator & a trader using this indicator can avoid entering a market when it is too late. This Indicator is also a good indicator to show when to take a profit early enough before the xauusd market takes away all your profit.
XAUUSD Indicator Formation
The OBV is the cumulative addition & subtraction of volume based on xauusd price direction.
Upward direction - adds volume/ technical indicator moves upward
Downward direction - subtracts volume/ technical indicator moves upwards
Sideways market/Range market - technical indicator moves Sideways
Because xauusd price moves in a zigzag manner, the OBV trading indicator will also form in a zigzag manner
XAUUSD Price Trend-lines
Most Traders will use these to generate buy and sell signals.
For our Best Gold Trading Strategy we shall use the OBV indicator to confirm these buy sell signals from xauusd price trend-lines.
We shall draw a Trend-line on both the xauusd price & Indicator. If both give the same signal we buy or sell depending on the direction.
This strategy will be used to determine 2 things.
Continuation of the current market direction
Reversal of the current market direction
