Testing short term bull trend

Using a 15 minute weekly chart it is evident a trend has emerged in the past 3 days of trading. The trend line was broken and the price dropped aprox $10 in quick succession. Whilist the trend level was breached, it quickly subsequently rebounded. I expect that in the short term the price will trend sideways, unless large volume push the price above support.

long gold @ US $936.00

Long Gold @ $936 USD (10 oz)

Margin - $93 USD (1%)

Total Investment - $9,360 USD

Stop Loss - 5% ($889.00)

Maximum Possible Loss - $500

Risk / Return Expectation - 3:1

After the massive commodities sell down of late last week I decided to act and put a long position on gold. On Thursday as the price plummeted for the 4th straight day I decided to enter long at $936 an ounce (price after the spread) with my stop loss at $989.00.

In hindsight I should have waited for the price to steady and for a clear trend reversal (I also underestimated the "long weekend" liquidation as people closed there positions). However I was in and this was all the mattered. My reasoning for the entry into this trade was based on fundamentals.

Whilst the hammering of the commodities sent news headlines across all media stating "the end of the commodities bull run", and "the recovery of the bear market". It was my opinion at the time that this was a great buying opportunity and nothing more than a healthy consolidation period for gold. Fundamentally nothing had changed at all.

- The US economy was still in shatters with more sub prime mortgage write downs to come

- Still continued weakness in the US property markets

- US consumer confidence still at extreme lows

- Still strong demand for gold from emerging nations (coming up to India wedding season)

- and to top it off America is about to be officially labeled as being in a recession

None of the above had changed overnight yet because wall street had a run of around 3% all of those above factors seemed to be forgotten. This in my eyes was a great buying opportunity.

As Wall street opened on Thursday night gold was hammered down from $930 ish to a monthly low of $904, almost wiping out my position which had a stop loss at $899.00. Eventually the market closed at $914.00 giving me a slight level of comfort that the $900 level hadn't been tested and I was still in the game.

Lessons Learned

Rule # 1 - Never Invest against the trend.

Tried to pick the bottom too early and eded up falling from $936.00 to an intraday low of $904.00. Wait for confirmation signal to indicate end of bearish trend.

Rule # 2 - Dont underestimate trading holidays
Invested in a long position before a public holiday, resulting in additional downard pressure as investors liquidated positions.

dark world of derivative trading

Being my first post I thought I would give you a bit of a run down of myself and background to future trades I plan to post on this site.

I write on this blog as novice CFD investor, having traded shares on the Australian Stock Exchange (ASX) for 2 years with relative success, I decided to take the plunge into the dark world of leveraged trading. After setting up an account with CMC markets with $1,000 float, I began trading. What a lesson this was !!

Having installed the market maker platform on my computer and browsing through the technical indicators offered on the platform, I was burning to start trading. My first trade was a long on the $USD / $AUD. Although my analysis wasn't too bad, my stop loss was set way too close, with my trade closing out from the stop loss shortly after. My next ventures were trading equities in which I went long on Lihir gold throughout a $3.00 - $3.20 band it hovered in during much of 2007. I also had a small dip into trading spot gold.

Needless to say like most newbie CFD traders, my $1,000 didn't take me very far and it wasn't long before most of it had been lost. Although having lost $1,000 I learnt some in valuable lessons about money management the importance of having a strategy, being educated on the markets and most importantly not to gamble on stocks.

It has been a good 12 months since my de-virgination into the dark world and I have since educated myself and built up enough confidence to re-enter the dark world.