How Do I Generate Gold Trading Signals with a Gold Trading Strategy?
XAUUSD Trading Generate XAUUSD Trading Signals with a Strategy
This gold trading guide will show an example of a Best Gold Strategy that swing traders can use to come up with a profitable Gold 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 Best Gold Trading Strategy. The Indicator settings are:
- 5 & 7 Linear Weighted Moving Average, Linear Weighted Moving Averages
- RSI 14
- OBV xauusd trading technical indicator
Time-frame: 4 H chart
Entry Signal
Buy
- Both Moving Average pointing up
- RSI above 50
- OBV gold indicator is in an upward gold trend line or it has broken downwards gold trend line
Sell
- Both Moving Average pointing down
- RSI below 50
- OBV gold indicator is in a downward trend line or it has Broken upward Trend line
Exit Trading Signal
OBV gold indicator 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 Gold Signals
You can also Read about other Gold Strategies: Strategies List
Example of Trading XAUUSD 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 the money flowing into a gold instrument or money flowing out of a gold.
OBV gold 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 or a gold instrument nothing is more crucial to this gold analysis as understanding the volumes that are flowing in and out of a gold. These volumes can be in terms of money, in Gold because charts moves in ticks data, the more money in a gold instrument the more the ticks data, therefore volumes in Gold will measure number of tick data participating in a gold.
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 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 gold indicator - 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 gold indicator will measure the tick volume of gold, 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 Gold Candles & Red for Bearish XAUUSD Candles.
This is where the On Balance Volume comes in & adds a direction to the volumes & shows the overall direction that the volumes are flowing, whether into or out of a gold.
Volume Precedes XAUUSD 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 a gold instrument will then go up. When the OBV gold indicator is going up it shows there are more buyers buying a gold than the sellers selling it.
When the volume falls it shows that money is starting to flow out of a gold. Because volumes will precede the xauusd price, the next thing is that the value of a gold instrument will then go down. When the OBV gold indicator is going down it shows more trading volume is going short than long.
Subsequently when a downward gold trend line of the OBV gold indicator is broken it shows that sellers are starting to take profit and close their xauusd trading orders.
Likewise when the upward trend line of the OBV gold indicator is broken it shows that the buyers are starting to close their buy xauusd trades & 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 gold indicator 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 gold 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.
Gold Indicator Formation
The OBV gold indicator is the cumulative addition and 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 gold indicator will also form in a zigzag manner
XAUUSD Price Trend lines
Most Traders will use these to generate buy and sell xauusd trade signals.
For our Best Gold Trading Strategy we shall use the OBV gold indicator to confirm these buy sell signals from xauusd price trend lines.
We shall draw a Gold trend line on both the xauusd price & Indicator. If both give the same signal we buy or sell depending on the direction.
This gold trading strategy will be used to figure out 2 things.
Continuation of the current market direction
Reversal of the current market direction
Example of this Strategy
1. Downwards Bearish Market
In the above chart the first half of this gold is bearish. This can be shown by the xauusd price trend line that shows a downward direction. This xauusd price downward trend line is also confirmed by the downward trend line on the indicator - as long as these two move in the same direction then the direction of the gold instrument remains decisively downwards.
Because volumes precede xauusd price, a trader can hold on to his sell xauusd trades because the xauusd market direction will not reverse, before OBV gold indicator gives a warning.
2. Gold Trend Change
Halfway through this chart there was a gold market reversal marked by the vertical line. This reversal gold signal was generated when there was a trend-line break as illustrated on the xauusd chart.
From the gold chart you can see that the OBV gold indicator gave the reversal gold signal just before the xauusd price trend line was broken generating a reversal gold signal. If you had opened a sell this is where you would have closed all your trades.
3. Upwards Bullish Market
Trading a gold market reversal can be sometimes tricky, but the reversal gold signal generated above was generated at the optimum time and xauusd price continued to move up after this reversal gold signal was generated.
For this you would have just bought the gold when the two trend lines were broken to the up side giving a buy signal. This buy was also a good signal in that the On Balance Volume had already formed an upward gold trend line by the time the downward gold trend line was broken.
The new OBV gold indicator upward gold trend line confirmed the direction of the market as a buy and more gold traders will open buy gold orders and as long as it holds, as it did in the above example then the xauusd price will continue moving upwards.
After this gold signal was given you can see that later the xauusd price formed a decisive upward gold trend line that matched the OBV gold indicator upward gold trend line. As long as the two kept moving upwards then the xauusd market was firmly upwards.
XAUUSD Trading Whipsaws
4. At the end of this upwards direction, OBV gold indicator gave a gold whipsaw as if to break the upward trendline. However, even if you had opened a short trade because of this new signal that had formed as shown above you would have quickly closed your sell gold orders before they reversed because the OBV gold indicator soon broke this downward trend line as shown above and therefore the sell gold trade that was forming is now not valid.
One thing that one must learn to avoid as with any other gold trading strategy is that whipsaws might be generated. The best way to avoid this is to exit as soon as the OBV gold indicator trend line is broken especially when you are trading the reversal xauusd trade signals.
For the above example once you exit the short trade, after the new OBV gold indicator downward gold trend line was broken it shows there were still more buyers in this xauusd and it is better to exit any reversal trades that you might have opened, this is because the xauusd price might as will move further upwards as shown by the gold indicator moving upwards.
Because the OBV gold indicator still went up even after touching & breaching it a little, the OBV gold indicator upward gold trend line still held therefore the upwards bullish direction is still intact according to our gold technical analysis & any further trades here are still buy.
Gold Trading Generate Gold Trading Signals with a Strategy
