Gold Higher As Stocks Plunge

That’s more like it. The equity bears are having a picnic; the S&P 500 (^GSPC) is currently below 800 and gold has plugged $1000 into its Sat Nav.

My only trades today have been in GBP/USD; the first trade was poor quality and cost me a few quid, the second was better and left me with an overall profit.

I’d been hoping to get to the gym before the release of the UK’s inflation data, but for some daft reason decided to open a trade first. I fancied that the overnight news on European banks, and the consequent weakness in equity markets, would benefit the Dollar. The GBP/USD rate was way below its pivot point and falling. I would have preferred to sell on a pullback, but early-morning fever took over and I dipped my toe in with a £1 sale at $1.4136.

The only thing that happened for the next hour and a half was that I missed the gym. The price gyrated close to my opening level, not inclined to return to the lower levels ahead of the inflation announcement. In fact the steady improvement ahead of the number looked suspiciously like a few people knew what was coming. I opted to hold the bet over the announcement (only because it was a tiddly £1 bet) and closed out at $1.4178 on the higher than expected inflation figure. The loss of £42 was irritating but bearable.

My second trade was of far better quality, and had the added bonus of providing a link to Galloping Zebu’s excellent Finding Trends In Markets Part II.

Zebu talks about using a moving average crossover to enter the trade; this usually means that you don’t get the full 3-course meal, but that you’re more likely to enjoy a good main course, rather than get chucked out during your starter. I tend to trade when the price crosses a moving average, rather than wait for a moving average crossover, but only if the move is confirmed by either a MACD or RSI momentum indicator.

Don’t get me wrong; I’m not saying my way’s better (it’s certainly more risky). I’m simply using it as another example of the many variations on a theme. If you check out the chart above you can see the two entry points; the first where I entered after a closing candle on the price crossover, the second after a closing candle on the moving average crossover. But that’s a selective (though topical) chart. Many other charts would show my early entry stopped out as the momentum dies. I guess the real message is, “have a play, make use of the demo account, and see what floats your boat”.

So, back to my trade, I bought £2 at $1.4222 and, after trailing my stop at a safe distance, closed the trade at $1.4295 after the second assault on $1.43 failed. The trade netted me £146; enough to offset my earlier loss and pay for some tuna sandwiches.

But forex trading was a sideshow today. My real winner was an extremely patient short bet on FTSE (^FTSE), and I must admit to closing out part of the short at 3998. Previously there was good support around here and I reckon I’ll get the chance to re-open at a higher level in the next few days. The real fun will begin if the S&P 500 ends the week below 800. With option expiry on Friday I’m hearing there will be a lot of support around this level-hmm we’ll see.

A final observation; gold looks to be the safe haven of choice, rather than the Dollar or Yen.

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