Are we looking at a possible Channel Reversal opportunity in Gold?

Since the 6th of June, we have seen the price of gold fall 30 USD and it has traded outside of its channel twice during this month so far. With the price now retracing a short part of the distance and touching the Adaptive Laguerre Filter, which according to chart theory gives a buy signal, a long position can be entered.

Using a channel regression system, a stop loss can be placed below the lower band in this instance. Many traders using this system do not like to give a set take profit level and prefer to use trailing stops. This is because if the market is heavily tending, short pullbacks, which the indicators find, may only last a short time and can wipe out any profits gained.

If a take profit is to be used, technical traders, for a lower risk trade you would look to place it on the middle band and for a higher risk trade on the upper band.

Confirming this entry area, we have the two quicker moving averages now moving above the slow moving average in the middle panel which could indicate a possible trend reversal.

Overall the channel reversal trading system can offer some great trading opportunities in ranging market but can still give small profits when the market is trending which is why it is best used with indicators that can detect what state the market is trading.

Happy trading

Alexander Flood

Technical Analyst

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