It’s crucial for me as an independent trader to know when to be in the game and when to sit on the sidelines. Taking high-probability trades significantly increases my chances of survival while active trading in the market with low predictability threatens to bleed my account to death despite the proper risk management.
In my opinion, Gold is currently going through the period of low predictability. In July 2013 the Gold ETF (GLD) entered a consolidation phase (blue rectangle) and right now is in the centre of this consolidation. I could draw some charts and speculate what form this consolidation is going to take: a rectangle, triangle or inverse head-and-shoulders. The truth is it’s irrelevant and not necessary from the practical point of view. At this moment trying to predict the complete form of the ongoing correction in Gold and trade on this prediction gives no better odds than the tea leaves reading. The ADX (14) shows a lack of directional trend in the environment of low volatility. It is somewhat similar to the conditions that Gold traded in the first half of 2012.
The long horizon P&F chart gives a better visual representation of the ongoing consolidation process.
The current market conditions don’t favor directional trades in Gold. Experienced option traders may consider range bound directional neutral strategies (long butterflies, long condors).
Disclaimer: I express only my personal opinion on the market and do not provide any trading or financial advice (see Disclaimer on my site).