c14 JWBT016-Busby September 30, 2008 14:30 Printer: TBD
142 STRATEGIES TO WIN
As noted earlier, gold is highly news sensitive. It is especially vulnera-
ble to Fed news. Therefore, if you are holding a gold position on Fed Day,
I suggest you do as Geof does and tighten your stop just before the news
announcement. He moves much closer to the current prices, and if long, he
puts his stop just below the daily low; if short the stop is placed just above
the daily high. If the stop is hit, he is removed from the market, moves to
the sidelines, and reevaluates. Fed news is so powerful it can shift the di-
rection of the market for a day, a week, a month, or longer. Therefore, if he
is long and there is a new daily low after the news, he wants to be out of
the action. There is no need to stay with a trade that is not working. How-
ever, because Geof swing trades, he usually has locked in some profits by
that time. After he has three up days, he moves his stop/loss order up and
reduces risk while locking in profits.
Below is a detailed explanation of one of Geof ’s recent gold trades
when he followed the preceding strategy. In late February 2008, he bought
three mini gold futures contracts at $934 an ounce. Following the steps
noted earlier, he held those contracts until well into March 2008. He was
stopped out of his trade at $999 for a total profit of 65 points per contract.
Figure 14.2 graphically depicts the trade and identifies the entry and exit
points of this particular gold play.
Geof offers a few words of caution for those wishing to trade gold: If
gold drops $50 to $100 in any two-week period, a pullback is coming. Also,
if the market gets very quiet and stays in a 10- to 15-point range for a coupleFIGURE 14.2 A daily chart of gold futures. This trade was held for about 20 days.