Gold's range trap — which side breaks first? | XAUUSD Oct 21

Hi, I'm Daniel, a currently active prop trader. Today gold is in a trading range. Since last time, price broke out to the downside below the bullish reversal candle we were watching, but the breakout pullback that followed failed, and from the Tokyo session onward the range has continued.

Heading up toward the upper edge of the range, we saw a rally of about 43 dollars, or roughly 438 pips. Right now price is stuck in a small sideways range, with lots of doji candles inside it, and I think the market has completely lost its sense of direction. Basically, this is a phase where I want to wait for price to break out of the range and show a clear direction before considering any entry.

Will the range continue, or will price break out and shift into a new trend? That's what I focused on in this analysis. So without further ado, let's start by looking at the daily chart for gold.

Now, looking at gold's daily chart, yesterday's daily candle ended up closing as a bearish doji candlestick. As of yesterday, what we were focused on was this: price had just broken down from the recent high with that bearish doji candle on the daily, so I was explaining that if we saw a move that looked like a breakout pullback against this low here, we could consider a short position even at the daily timeframe level. In fact, looking at yesterday's daily candle, we could clearly say the high had already been fully tested by this doji candle here, so we can reasonably assume there are probably bears trading on the daily chart who went short here, expecting follow-through from this candle.

And just below current price, we've got a bullish candle that marked a reversal, sitting there. When price tests this level, we should be wary of a bounce, so if you open a fresh short-term short position, I think you'll also need to treat this support zone as a key take profit target. Also, yesterday's daily candle formed a perfect doji, so today's intraday price action is likely to settle into a trading range, which is something we really need to keep in mind when planning our short-term trading strategy.

Next, let's take a look at the 1H chart. The red line on the 1H chart you're seeing now marks the exact point in time when we held yesterday's community-only live stream. In this video, I'll walk you through exactly what technical analysis and trading scenarios I explained to Trading Lab members at that point in time, so let's keep going and focus on just the key points here.

First, looking at the candle at the time of our Trading Lab members-only stream, it formed a bullish candle that we can read as a bullish reversal candle. After that, price tested the doji's key level, which had acted as the previous day's key level, forming a bearish reversal candle, and by the Tokyo session close it had formed a large bearish candle, with the day ultimately ending inside the trading range, but from the London session open, we clearly saw a strong rebound come in, retracing more than 50% of that large bearish candle, so The first key focus is whether this strong bullish reversal candle can show follow-through to the upside.

And if this bullish candle does get upside follow-through, don't jump straight to the conclusion that gold is now reversing into a new uptrend, but rather see it as price simply rotating back into the trading range. That's what I explained inside our Trading Lab community. And on the other hand, if price cleanly breaks below the low of this bullish reversal candle, Naturally, this tends to drop as it triggers the stop-loss orders of bulls who entered here, And in my analysis I explained that the Tokyo session low that was sitting just below would then break out at the same time, with downside momentum building as it went.

And now, about the price action in the process that led me to make that call, Back in the stream before last, I hadn't yet walked you through it starting from this London session open, so I also gave a technical analysis breakdown that covered how price might unfold after that. First, the London session opened with a bearish doji candle, showing the trading range from the Tokyo session was still in play. Then on the second candle, we got a clear trend candle, the first one in roughly five bars, and the breakout to the downside started to extend from there.

The next bar printed a bearish candle with a long upper wick, doubling as a breakout pullback. Most recently, a doji candlestick formed right here, but price first tested the recent high and then broke out to the downside, And on top of that, you can see it formed as a solid bearish trend candle with no lower wick.

As I've told you many times before, candles like this one that move against the prevailing trend direction, and also doji candles, in a strong trend, for example a downtrend, I personally believe the area just below that candle's low is a good point to enter a short position, so Once this candle broke out to the downside, price actually never got back above this high, and the downswing just kept going. Then here it printed a bullish reversal candle, but what I really want you to focus on is this spot right here.

It's this bearish doji that formed right in the second hour after the New York session opened. It's a pretty large bearish doji. And since it's a bearish doji, even a single candlestick like this can act as a small sideways range on its own, so I figured it would likely work as a key level later on, and since it's big enough to really stand out on the chart, I saw it as a level traders would watch closely afterward.

Okay, getting back to the point. After this bullish reversal candle formed, naturally, the area just below its low becomes a good spot to enter a short. The upside follow-through failed on the next bearish doji, then price broke out to the downside.

Shorting here is the right call in this case, I think. In fact, the candle that broke below this bullish reversal candle was an obvious, large bearish candle showing strong selling, and after that, price never reclaimed this high and fell well beyond the measured move target, as confirmed. Now, as for the Tokyo session open that came next, it's right here.

It closed as a bearish doji with a long upper wick, and at this point, what I should be thinking about is, first, that a trading range tends to form here, and since volatility is low, a trend tends to develop in the breakout direction, I often narrow my focus down to these two points, but look at the candle that came after it, which formed a bearish pin bar with a long lower wick, and because of that, This tells us no real momentum developed in the trend direction, so I was thinking a trading range was likely to form next, using these two candles as the reference candles for that range.

Through the Tokyo session, gold kept getting bought up strongly, but on the fifth hourly candle, a bearish reversal candle formed, and then on the sixth candle, a big bearish candle formed and broke to the downside, so as expected, it ended up as a trading range and that move was over. Then at the London open, a bullish candle closed, wiping out more than 50% of that bearish candle's move, basically canceling it out, so The key focus was on what kind of price action would unfold next after this bullish candle.

Now, checking against the latest candles, price ultimately broke out below this bullish reversal candle and kept pushing lower through the Tokyo session, but after that, the breakout pullback failed, so the trading range from the Tokyo session carried on, widening slightly as price kept rotating inside it. In terms of size, the range now spans about 43 dollars, which works out to roughly 438 pips, so the trading range has clearly expanded further here.

For today's Trading Lab members' session, I've covered these three points, explaining the upcoming scenarios and how I'm currently positioned. On the 1H chart, the trading range is still continuing with no clear direction. As for this range, the price width is narrow, so at the moment we're in a phase where there's little edge in actively trading it.

So we'd like to wait for the price to clearly break out of this trading range and show a clear direction, and that's why I explained that there's no particular edge in trading it right now. Now let's look at the real-time chart again. The doji candlestick that formed at the Tokyo session open has widened its range slightly, and price action still shows no clear direction.

With a small range like this, even scalping offers only a very narrow price movement to capture, so personally I don't think this is a situation where it's worth taking on risk to trade. That's all for today's gold analysis.