Gold Descending out of a Triangle

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Gold fell by more than 40 points today, breaking out of a descending triangle. If you’re not familiar with descending triangles, may be this would be another example of how triangles would work.

A breakout trader would likely have entered the trade at the break of the previous swing low (1623.22). This is probably a few points below the Support level and could considered using multiple stop levels pending on his/her risk appetite. Here are 2 examples:

  1. If the trader is reasonably conservative, a good stop loss is right above the previous swing high (Green arrow). At this point, a bearish trend would be invalidated if price goes above it.
  2. A more aggressive trader would place his/her stop loss a few points above the support level (Orange arrow). A Support level that is broken often becomes a Resistance level. On that basis, the trade would be invalidated if price goes back above the Support level.

If you intent to become a breakout trader, remember to backtest your strategy before you proceed.

 

Thank you and happy trading.

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