December Gold Futures: Trading The GAP
Shain Vernier • 2 min read
Mondays are always good for a few surprises and today’s lies in the gold market. We have talked in-depth about trading pricing gaps during previous weeks and we have another one for today. The remainder of the U.S. session may bring us an opportunity to profit from another gold gap.
As my colleague Arslan discussed earlier, the geopolitical situation between the U.S. and North Korea has turned the commodities markets upside down. Turbulent markets can provide good trading opportunities, so let’s get to it!
In contrast to last week’s bullish action over the weekend, gold has gapped down on Monday’s open. The price action on the daily chart is a bit chaotic:
December Gold Futures, Daily Chart
Gaps in pricing are an interesting phenomenon. Basically, when the markets are closed to the public, liquidity providers adjust their ledgers and give us a brand new starting price. All we can really do is take the fresh market and move forward.
A few levels to be aware of:
Key psyche level of 1350.0
Current gap at 1341.5 to 1347.1
38% retracement of two-day range (with gap included) 1345.6
Bottom Line: I am a fan of Steidlmayer’s market profile approach to trading gaps. It states that price has a tendency to “fill in” neglected areas to a normal distribution (think bell curve). I look for today’s gap to be tested and filled in accordingly.
A short entry from the 38% Fibonacci retracement is a good way to trade the bearish sentiment and employ a proven technical approach to the market. Shorting December gold futures from 1345.0-1345.6 is a trade that is highly likely to be in the green for a considerable period.
It is always good to start the week on the right foot. Taking a conservative 1:1 Risk/Reward here is the play, with a max take profit in the 10-25 tick range. Let’s hit a few singles before we swing for the fences later on in the trading week!