By FXEmpire.com
The gold markets had a wild day on Wednesday as the market fell hard for most of the session, only to bounce hard from the $1,540 level. The late day in America saw some kind of “hopium” fueled rally, and as a result risk on was suddenly in vogue during the last couple of hours in the stock markets. The hope or dream is that something is going to come out of Europe that is going to change the situation over there. However, we have seen this movie before, and understand that any pop in risk appetite is more than likely going to be short lived at best.
With this in mind, we need to see the $1,600 broken to the upside in order to buy gold at this point. The downside is still protected by serious support at the $1,500 level, and we feel that a move below that level would send the market much, much lower as the backs of the bulls would be broken at that point.
The market is going to be a bit tough to trade in this environment, and as long as there are fears of trouble out of Europe, the market is going to be volatile. With this in mind, we have to make our trigger prices wide like the $1,500 and $1,600 levels suggest. Otherwise, trading this market in a tight set of parameters is inviting massive trouble. The markets sometimes are only tradable by using a much larger set of parameters, and this is certainly one of those times.
For example, had you sold gold in the early hours, you have seen your profits evaporate as trader began to buy the Euro on hopes that the Europeans will do something that they want. Seriously, it is that convoluted at the moment. With that in mind, being very cautious is by far the best strategy, especially if you are playing the full sized gold contracts as the losses can pile up quickly. As for going forward, we will be taking profits as they come, and be quick to exit trades when they look all wrong.
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Originally posted here
