Gold at 3,971 range break — drop extends or wedge reversal? | XAUUSD Jul 17

Hi, this is Daniel, active prop trader. Today gold's leaning to the downside. That said, if we don't get downside follow-through selling here, the daily could form a wedge and reverse.

So we need to stay flexible with our bias here. Last time, just as I flagged in the community, price broke down out of that sideways range, and dropped roughly 695 pips from there. Right now we're at a key spot, sitting just below that prior sideways range after breaking down out of it.

So the big question is whether this drop keeps going or flips into a reversal, and I broke down exactly what to watch and how to play the next move here. Alright, let's dive straight into the daily chart now. On the gold daily chart, yesterday's candle closed right at the first line.

So this now looks like a downside breakout below the doji that followed the prior bullish candle. On the daily chart, what I told you yesterday was that even though the prior day carried a strong downside bias, the daily direction tends to follow whichever way it breaks out from that recent bullish doji candle. I also mentioned that within a single day's flow, on the shorter timeframes the prior daily candle was a bullish doji, so the market was in a state where it could easily keep advancing in a continuous, connected fashion.

As I said earlier, by breaking below this doji to the downside, we've ended up in a situation where we can now realistically expect follow-through lower from here. On the other hand, if the downside follow-through doesn't actually materialize from here, then even though this low, and this low, and the most recent one here, or the low we print after this, are all being pushed gradually lower, the gap between each lower low keeps shrinking, forming a wedge shape.

If that plays out, textbook-wise there's a strong chance price pushes up to around here, so we should factor that view into today's strategy too. Of course it's the weekend, and if price has been falling all week, short positions tend to get closed out here, so that's a key angle we really need to watch closely today. Alright, now let's move on and take a look at the 1H chart.

Yesterday's members-only session was right around this area here. I want to walk you through, right here on YouTube, exactly what I shared with the community in yesterday's members-only session and the levels we were watching. My main view was that the daily chart was trading in a range, so the top scenario I favored was targeting the distance between key levels.

Since a tight range was forming inside this bullish candle and the doji lines, and given that I was aiming for the distance between those key levels, I think this was really a situation where you had to commit fully to buying that range. Now let me walk you through the actual process behind this decision, and I'll start by picking out a few of the specific candles I was keeping an eye on. So the very first thing I zeroed in on was this particular candlestick right here on the chart.

This candle right here failed to break below the recent sideways range, and it ended up printing what's basically a reversal low, closing back inside the range instead of following through to the downside. Basically, when a breakout attempt fails like this, the odds shift toward price testing the opposite side of the range and breaking out the other way instead. And in fact, right after that, we get a bearish doji forming, but price breaks out through it, never closes below here, and rallies into a strong upswing.

After that, the high marks the last reversal point of the recent upswing, and price stalls right at that key level where short positions would most likely have been entered. A sell setup did form, but the setup candle is a bearish doji, which tells you the bears haven't fully taken control of this move yet at this level. At this point, since the downtrend has clearly been running all the way down to here, even if price keeps falling, this becomes the second test of that low, so there's a strong chance the drop stalls right around this level.

After that, as price kept sliding, it printed this large bullish candle here, and once it tested this key level where buyers had likely stepped in, the drop stalled for a moment and momentum turned sharply higher. In the end, since price failed to break above this level, it rolled over and dropped from here. And even though the bull wave showed this much upside momentum, it never made a new high, so the scenario of a real, sustained uptrend got rejected — meaning you really can't jump in carelessly on the long side right now.

With bulls unable to jump in and a clean bearish reversal candle forming at this pullback, price naturally rolls over, so we head back down to retest that level again. Once price reached this pullback zone and the strong bullish attempt clearly failed here, the bulls naturally hold off and wait for a fresh signal, so nobody stepped in aggressively to go long, and that's why price ends up closing right around here. In the end, the prior day broke this sideways range to the downside, setting a fresh direction, and the bears have now clearly taken control of the market.

On that bearish wave, the breakout candle itself dropped a full 69 dollars, which works out to 695 pips, and it played out exactly along the scenario I laid out. So for today's session, my main focus in this analysis is the battle playing out around this sideways range and how it resolves. Most recently, price has built a sideways range anchored on this doji, and even before that we saw the same pattern of ranges stepping steadily lower.

On the bigger picture we're still in a downtrend, so I think the next move will be decided by whichever way price breaks out. Inside the range, though, you want to trade the range, so entering near the lower boundary naturally gives you a long bias, while entering near the upper boundary favors a short bias. A sideways range can ultimately break either way, up or down.

So it really comes down to staying flexible and being ready to ride whichever way the breakout actually goes. That wraps up today's gold analysis for XAUUSD, everyone.