The Geeky Gold Strategy – Trading Binary Options on Gold

Full Review of he Geeky Gold Strategy for Binary Options Trading

Gold is the only commodity I trade and not even that closely. Because the market for gold is so liquid it is especially good for using pure technical analysis. Find out how I trade gold using Fibonacci Retracements.

The Most Liquid Market

Gold just may be the most liquid market in the world. Oil is right up there as well but I like to stick to gold. Because of its use in jewelry, commercial trade, easy storing and portability gold literally trades 24 hours a day 7 days a week. Think about it, even when the international commodity trading arenas are closed people are still buying and selling gold around the world. It is because of this liquidity that gold is so well suited for pure technical analysis. Yes, gold is affected on a day to day basis by news events that shock, scare or support the markets but the underlying trends in gold are driven on long term fundamentals that are well disseminated throughout the market.

How the Gold Strategy Works

I use Fibonacci to do most of the work for this strategy. Fibonacci Retracements are a great way to predict possible areas of support and resistance based on the Fibonacci Sequence and the Golden Ratio. The Golden Ratio is a numerical way to explain the relationships between objects in nature known to man kind for thousands of years. Basically the Fibonacci Tool is used to predict lines, or retracement levels, based on the height and magnitude of bull and bear markets.

I start with 10 year charts of weekly data in order to get a good view of the long term trend. I then use the Fibonacci tool to draw retracements of the last completed trend. It does not matter if the last trend is bull or bear. This will provide you with your retracement lines. The next step is to look at the charts and see how these lines relate to the current price and trend. Is price approaching a Fib line? Is price bouncing from a Fib line? On this chart gold prices have bottomed and begun to retrace. Price has moved up to the first retracement level and broken through it. A confirmed break through has a target of the next Fib line up or down, depending on direction. The first retracement line was broken so the next target is the next retracement, 38.2%. If this line is broken the next target will be the next line, the 50% retracement. Based on this chart golds next target is around $1475 and the next higher retracement level. This sets the trend as up for the current trade.

• Signals require a close above/below the target Fibonacci Retracement. More than one close strengthens the signal but adds risk to the trade.

Once you have determined trend on the weekly charts you can move down to the daily charts for shorter term signals. Only trade in the direction of the prevailing trend as determined by the weekly charts. If prices are breaking above a Fib line then you need to look for bull signals on the daily charts.

I have marked the bullish break through on this chart of daily prices. If you catch the break early enough on the weekly charts it is possible to take trade before prices cross $1400. Otherwise I would wait for price to cool off a bit and confirm support before making a trade. Upon confirmation an option with a few days to a week of expiration would be my choice.

Tips For Signals : If prices on the weekly charts are dropping below a Fib line then you need to be trading bearish on the daily charts. The same is true for bounces, if the price is bouncing from a Fibonacci support on the weekly then trade bullish on the daily char. If prices are falling from Fibonacci resistance trade bearish. Regardless of which signal no more than one week should be allowed until expiration. The closer to the next Fibonacci level the shorter the expiration should be.

Moving down to the chart of 30 minute prices there many opportunities for short term trades as well. On this chart we can see the beginning of the break and then the break above the $1400 level. Because the prevailing trends on the previous charts are bullish we can trade these bullish signals with option expiries of 2-4 hours. More experienced traders can also profit from the bear signals presented on the 30 minute chart between the 28 and 30 of August. These are harder to predict and should only have very short expiry times, like 1-2 hours.

Why This Strategy Does Not Suck

 This strategy does not suck because it uses a well known technical analysis tool, utilizes multiple time frame analysis, can be used in either direction and provides targets. Lots of strategies can give good signals but how many also deliver targets? I know that targets are less important to binary traders than other types of speculators but they are still a useful tool. Targets can help you decide which is the best expiry or even if you want to trade at the current time. They are also great for contrarian traders as well.

Why This Strategy Might Suck

 This strategy might suck because it is not exactly trend following. It does make a nod toward trend analysis by utilizing market direction in relation to Fibonacci Retracements but other than that it is basically non-directional. It also might suck because Fibonacci analysis is more of an art than a science. Fibonacci does an uncanny job of predicting where prices may turn but are nothing more than an educated guess. Even thought the natural world can be explained by Fibonacci’s analysis it (nature) is not governed by it and will often prove it.

My Last Words On The Geeky Gold Strategy

 I like this strategy. It works for me but I have to be honest, trading gold is tricky. Using Fibonacci’s is also tricky and not for the uninitiated. When gold is trending strongly it works really well. When gold is consolidating or trending sideways it also works but can provide whipsaws and false signals. I highly recommend that only traders with some understanding of trading use this technique. It definitely takes a little imagination to use but Fibonacci is a great way to measure market movements. For others, try using Fibonacci along with your other tools and see how the retracements relate to them and your current analysis.