Fibonacci and the 200 Day Moving Average

Hello traders,

I hope you all had a good week.

It has been another busy one for myself and Lex given month-end duties alongside our ongoing efforts with our new social trading initiative on YouTube (if you haven’t yet seen it, go check it out!). Your engagement so far has been brilliant and we’re really grateful for your encouragement – so special thanks to all of you who have supported us in our first few videos.

In last week’s blog I featured gold with the title of ‘The Last Big Trade of 2020?’. As we have only just updated our Checklist Report for paid Trading Club members, it is still a bit too early to reveal the total score here. However, it did provoke conversation on twitter from people questioning whether we were buying (bullishness assumed!) simply because of a pull back towards the 200-day simple moving average. As you know, that is NOT how we generate ideas with our trading process!

Here’s a reminder of how we evaluate gold from a fundamental perspective, and the 8 factors that it tracks:

Now, without revealing whether we were looking at a long setup, or for a retracement to a better level to sell short, the price has risen in the past week. However, it had NOTHING to do with the 200-day moving average as the chart below demonstrates (failed support with a spike lower to 1760)…

Frankly, I’m not too sure why I still include the 200-day MA on my charts… I suppose it is out of force of habit and, in some cases, something of a self-fulfilling prophecy (more so in equities). Nonetheless, it is a reasonable gauge of momentum but by no means something I would look to before anything else in order to identify support and resistance levels (areas, perhaps). What I do use to help me with this (and to each their own) are Fibonacci retracements. Here’s why:

As you can see, it had very little to do with the 200-day moving average, and everything to do with the 50% Fibonacci retracement level at 1763. When looking to time my entries and exits, I find this provides a more reliable edge than indicators which lag price. It’s all well and good being able to spot potential areas of support and resistance, but unless you have done your homework by following the Checklist process beforehand, then the odds may still be against you if you don’t have a fundamental bias! In other words; were you looking for a retracement to sell in to (counter-trend rally), or buy (bullish reversal)?

I look forward to revealing the score for our gold Checklist with you in due course. But don’t forget, you can join us for our analysis in real-time including new insights each week, or learn from the ground up with online tuition from Lex in our MDT online course at milliondollartraders.com and take your financial knowledge to the next level right away!

(PS Here’s the link to our latest video on YouTube)

Have a great weekend,

James

Disclaimer: For educational purposes only. Even though we do our best to provide reliable data, you should not trade based on this information. For more information go to www.milliondollartraders.com

© Copyright 2020 Lex van Dam Financial Education. Further distribution prohibited.