Forget Outsized Moves… This is How to Trade Gold

Investors can get really emotional about gold.

Many buy into gold in anticipation of a big surge, but outsized moves rarely play out.

Instead, promising setups often reverse, causing investors a lot of frustration.

You can see those clear reversals in the chart of VanEck Gold Miners ETF (GDX) below – an ETF that invests in gold miners such as Newmont (NEM) and Barrick Gold (GOLD).

The good news is that these reversals can still supply us with great trading opportunities. You just need to know how to trade them.

Today, I want to show you the way to take advantage…

Countermoves Against the Major Trend

On the chart of GDX below, the 50-day moving average (MA, blue line) shows two distinct trends.

GDX had a gradual rise from November last year that peaked in May. And then it saw a steady decline after the 50-day MA rolled over in June.

VanEck Gold Miners ETF (GDX)

Source: eSignal

Yet within these two broad trends, the 10-day MA (red line) shows that there have been plenty of swings.

An example is the sharp reversal from where GDX peaks at “A.” This is a classic example of gold reversing just when a major up-move was underway.

As you can see, that coincided with the Relative Strength Index (RSI) also changing course and making lower highs from overbought territory (upper gray dashed line).

However, GDX pulling back from peaks isn’t the only thing that’s generated sharp swings…

As the chart shows, these strong reversals have also come off the back of the RSI forming a “V” and rebounding out of oversold territory (lower gray dashed line).

That has caused GDX to bounce just like its rally in late February (left orange circle) and those other orange circles in May, June, and August.

Take another look:

VanEck Gold Miners ETF (GDX)

Source: eSignal

The latter three rallies all came after GDX’s peak at “B” and fought against the prevailing downtrend.

So, despite GDX being stuck in a slump, there have been three countertrend rallies – and three potential trades – in just four months.

What’s more, there could be another one forming now.

The key thing to remember here is that we’re not trying to predict where GDX will be trading next month… let alone next year.

What we are trying to do is look for countermoves against the major trend in either direction.

As we’ve seen with GDX in the past, there have been opportunities when it rallied (or sold off) too quickly. That caused it to reverse when momentum (RSI) swung back the other way.

So with the RSI now again tracking in oversold territory, what are we looking for next?

Forming a “V”

We know that just because the RSI indicates a stock is oversold, there’s no guarantee that it will bounce.

The key takeaway from the chart is that GDX’s previous bounces (orange circles) occurred after the RSI formed a “V” and rallied.

And that’s what I’ll be looking for from here…

We’d only consider entering a long position with the RSI rebounding higher out of oversold territory.

The other thing to reiterate is that we’re not looking for an outsized move. Instead, we’re looking for a brief countertrend rally against the overall downtrend.

If the RSI does rebound, causing GDX to bounce, we’d then look to take any profits off the table quickly.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

P.S. Yesterday, I went live with my 8-Hour Windfalls special event. There, viewers had the chance to follow me around for the day, see me trade in action, and learn about how one of my favorite strategies can let you profit in 8 hours or less…

If you weren’t able to tune in, then don’t wait – the replay is only available for a brief time… Watch here now.

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