I waited for the perfect signal – and I got my reward

On Wednesday, I described my long gold trade which went wrong (if only by $4). I suggested that if I took that loss, the disciplined approach would be to keep searching for another entry. After all, my bigger picture, which calls for a big rally, was still intact.

This is what I wrote: “With no open position, and using my tramline method in a disciplined way, the path is clear for my next trade”.

In one sentence, I laid out the disciplined course of action. I must see a clear buy signal – as shown by my strict application of my tramline method – before I commit.

Today, I will reveal what my next trade was, although I am sure many of my readers know the answer already!

One rash move can end a trading career

Far too many traders would simply not have had a clear strategy when faced with my losing situation. Some would trade emotionally and just jump back in (with no protective stop), desperate to make up the loss. Others would nurse their wounds (and pride), miserable that their forecast for an immediate rally wasn’t working out, before giving up in disgust.

This emotional trading style almost always ends in tears. You may be lucky in one or two instances it, but over time the odds are stacked against you. Remember, it takes only one undisciplined trade to decimate your account! And that effectively removes you from trading – a fate to be avoided at all costs.

It is far better to stand aside and miss a move than dice with trading death. Trading often resembles walking a tightrope over Niagara Falls: one false step – and oops!

On Wednesday, the market had retreated in what looked like the C wave of an A-B-C off the high. But that was not enough to encourage me to get back in! It was a start, but until the market had moved one way or the other off the upper tramline, I had no buy signal.

Gold price spread betting chart

If and when the market could break above the resistance offered by the upper tramline, I would have a clear buy signal. This is the second basic tramline-trading rule.

Until that break occured, the upper tramline would continue to repel attempts to move higher. In fact, an entirely sensible trade would be to short gold at the tramline! That would be using the first tramline trading rule.

This dichotomy is at the heart of all trading decisions. In practice, the correct procedure is to look at the one bigger picture – in this case the A-B-C corrective pattern – and assess the odds of the market moving up or down. In this case, the up path was more likely.

But by using my trade entry method, I did not really have to guess here. All I do is simply enter a buy stop just above the upper tramline – and wait.

If the market does break through, I am in. But if the market bounces down off the tramline, I am not in – and crucially suffer no loss. This is an ideal strategy for playing these situations.

My rally’s on, and it looks very strong

My strategy looks to be working out very nicely. As the market broke tramline resistance yesterday, my entry buy stop at the $1,195 level was touched and I had my trade. I quickly entered my protective stop just below the tramline for an $8 risk. (Sadly, not every gold trade can be managed with a puny $4 risk!)

Gold price spread betting chart

With that tramline break, my very first task was to draw in T3, which the market duly hit yesterday. This confirmed I was on the right track expecting a big gold rally.

As is typical in this situation, the market tried to get back to the broken tramline to plant a kiss, but the dip fell way short of the $1,190 level. This told me the market was inherently very strong and I could look forward to confirmation of my bullish forecast.

My next target is the highs at the $1,210 level. Breaking above that would be very encouraging.