Technical Analysis Trading Psychology

Opportunities emerge as long awaited gold futures pullback arrives

  • Emphasizes the importance of objectivity and a probabilistic mindset in financial markets.
  • Discusses the dangers of making decisions based on emotions and highlights the benefits of being aware of this.
  • Provides technical analysis of the current state of gold futures (GC), including key levels to watch and a potential entry strategy.

An important psychological point

It has been a while since we looked at gold because we did not want to chase the market higher. Our patience has been rewarded, and before we move on to the technical analysis and opportunities in GC, I want to remind you of how important it is to think objectively, without emotion, purely in probabilities.

It is difficult to do because we are constantly clouded by our emotions. Unconscious thoughts and feelings of ‘what if it rallies from here’ or ‘imagine having the profit from this trade’ dictate our decisions. It is absolutely imperative that you become aware of this. This way, you can begin moving away from the emotional state of greed and fear and into the objective state of a probabilistic mindset. All of the best traders and investors think this way, and so should we.

If we had been emotional a few weeks ago when gold broke out of the top of the wedge, we would have chased the market higher and been down significantly by now. The probabilistic trader would have easily seen this. The thoughts that would enter the mind would be more along the lines of, ‘yes, this could rally higher from here, but based on my technicals and understanding of the market conditions, it appears overbought to me, so rather I wait for something better or look elsewhere.’

Be objective, remain in probabilities, and stop feeling ‘good’ when you make a profit and ‘bad’ when you make a loss. Leave that behind. There is no place for it in the financial markets.

Technical Analysis

A few weeks ago, the rising wedge was broken to the top side. I was looking for a pullback initially to $1,889, which we have got as GC currently trades for $1,885. The second pullback target I noted was $1,834, but there is one level price that needs to fall below for this to be possible. The level is the 50% Fib fan price, and price is settling on it now, finding some support there.

If we see price fall below the level, then $1,834 is likely to be the next stop.

GC Daily Chart showing fib fan long term
GC Daily Chart

What now?

From here, it’s ideal to patiently wait for some sort of reversal signal on a lower time frame, such as the 2 hourly chart. A double bottom paired with a candlestick formation could be a good way to enter with a defined risk below the recent low on that chart.

GC daily chart showing fib levels, rising wedge and high of 2022 gold price
GC Daily Chart