XAUUSD is the most traded commodity in the world. So, in this post, I will explain a trading strategy for Gold (XAUUSD) that consists of smart money concepts such as the flag limit pattern, price action chart patterns, and the supply and demand indicator.
This is a proven trading strategy, and it actually works. All you need to add is patience so you can become a profitable trader. Without proper psychology and a risk management plan, it will be difficult to make a profit even from a holy grail trading system.
So, read this post till the end and do not skip any step to avoid missing any important point of the strategy.
First, let me explain the two important terms of this strategy to make it easy for you to understand.
What is a flag limit in trading?
On the candlestick chart, the formation of Rally-Base-Rally and Drop-Base-Drop represents the flag limits. These patterns always hold the price. For example, if there is a bullish flag limit, then it will hold the price higher until it breaks. On the other hand, if there is a bearish flag limit, then it will hold the price lower.
We will use this concept to determine the future direction of the market. Usually, after touching a zone four to five times, the price breaks the flag limit. This also confirms the direction of the price.
Price also bounces from a flag limit zone, mostly after two touches. So, we can also expect the price to bounce from a flag limit zone after the formation of a reversal price action chart or candlestick pattern.
I recommend that you learn more about flag limits in detail because it’s not possible to discuss every point in one post.
Which price action chart patterns should I use in this strategy?
Price action chart patterns are patterns that the price repeatedly forms. By using these patterns, we forecast the price. For example, by using a simple Wolfe Wave pattern, we can forecast the market. In the same way, we also use the Head and Shoulders pattern, quasimodo pattern, flag pattern, broadening pattern and many others.
Price action patterns also include the major candlestick patterns such as the engulfing pattern, pin bar, tweezer top/bottom, and morning/evening doji star patterns.
So, in this XAUUSD trading strategy, we will also use price action chart patterns to determine the price target.
What is the purpose of using the supply and demand indicator?
The supply and demand indicator is a price action-based indicator that displays high-probability supply and demand zones. These small zones help to pick a pinpoint entry with a tight stop loss. Getting a pinpoint entry is difficult, but here we will use the supply and demand zones.
A tight stop loss helps us to get ultra-high risk-reward trades, which will help us stay profitable even after many losses.
So, our strategy should also be compatible with a good risk management plan.
We cannot forecast the market 100% correctly every time. We will also face losses. So, a good risk management plan saves us from these losses.
What is the XAUUSD trading strategy?
XAUUSD strategy is a combination of above three things flag limits, price action patterns and supply demand zones indicator.
If you dont have supply and demand indicator then you can also find the zones manually. Visit our blog and learn in detail to find the zones correctly.
So XAUUSD strategy is as follows:
- First identify the flag limits on the price chart. Find the areas from where price can bounce or which flag limits can ben broken by the price soon.
- Next find the price action patterns at the flag limit zones. For example if there is a bullish flag limit then we will have to find a bullish price action pattern at this flag limit zone. This will tell us about the price target.
- Once we determined the price target then we will apply the supply and demand indicator. If there is a bullish price target then we will only add trades on demand zones. You can also open trades manually on each demand zone if you dont have supply and demand indicator.
- Now hold the profitable trades and breakeven each trade after 1:1 risk reward. Keep on holding trades until price target reached.
What timeframes should i use for this Gold strategy?
It depends on your trading style. A scalping trader will trade on lower timeframes while intraday trader will trade on a bit higher timeframes. We will use different timeframes for identifying flag limits, price action patterns and supply demand zones.
| Trading Style | Flag Limit & PA Pattern TF | Supply Demand Zones TF |
|---|---|---|
| Scalping | 5M & 15M | 1M, 2M |
| Day Trading | 1H & 2H | 5M & 15M |
So in scalping, you will have to find the flag limits and price action patterns on 5 minutes or 15 minutes candlestick chart. Then after identifying the target switch to 1 minute timeframe and find and trade the supply and demand zones.
So this is a simple and highly effective supply and demand trading strategy for Gold (XAUUSD)
The bottom line
This XAUUSD trading strategy consist of proper confluences such as flag limit to identify high probability reversal zones, price action patterns to identify the target and lower timeframe supply demand zones to get the trade entry and stoploss price. So everything is synchonized.
I highly recommend you to backtest this trading strategy and then apply it on live chart. But first you should remember to learn flag limit and a few major price action patterns from forexbee blog.
If you have any question dont forget to comment below.