Gold's $75 selloff stalls — what confirms the next leg down? | XAUUSD Oct 22

Hi, I'm Daniel, an active prop trader. Today I'm bearish on gold. After the trading range continued from last time, in today's Tokyo session price broke out below a key daily chart level, dropping a full 75 dollars, or 754 pips, in a strong selloff.

Right now price is consolidating in a trading range after that sharp drop, but the rebound attempt has failed, so the bulls who bought in are most likely sitting on unrealized losses, in my view. So basically, I'm keeping my bearish outlook. The question is whether price resumes its drop from here, or whether it breaks above the top of the trading range, forcing me to switch to a bullish view.

That's the focus of today's breakdown. Alright, let's dive right in and take a detailed look at the daily chart. Yesterday's daily candle on gold closed as a bullish doji.

As for the daily chart, here's what I shared yesterday. First, the prior candle had formed a bearish doji, so my base assumption was that price would likely keep trading within that candle's trading range, and since price was testing this recent bullish reversal candle right here, I explained that we should also watch out for a bounce on the daily level, but in a way that met both conditions: it was prone to forming a trading range and also likely to see a daily bounce, and it closed as a bullish doji.

Also, as I've been mentioning for a while, once price breaks out below this bullish reversal candle, in the short term it tends to drop with momentum, as I also said. That's because bulls who went long on this bullish candle have stop loss orders that price can sweep as it falls, That's what I'd been telling you, and in fact, right from the open of today's Tokyo session, I think you can clearly confirm a strong downtrend forming, with price selling off hard, so Basically, I think there's a high chance today closes as a strong bearish candle.

And given the current situation, on the daily chart we have these key levels where price has broken out, If we treat these as key levels and a breakout pullback gets confirmed, then we're in a position where shorts can be considered on the daily chart as well. Also, about the bigger trading range: it's actually easy to see if you look at this big bearish candle. Ever since this big bearish candle formed, price has stayed in a range for a long time.

I believe I mentioned around the video before last that as volatility keeps contracting, the timing of a breakout is now getting closer, The broader trading range sits right around here. Since we haven't broken out yet, price generally tends to return inside the range, which is how ranges typically behave, and range theory also says breakouts here tend to fail. So if today closes as a bullish candle or with an extremely long lower wick, then from tomorrow, in line with theory, price will likely swing back and test the upper end of the range instead, so we should at least keep that scenario in mind.

Next, let's move on to the 1H chart. For the 1H, I did a livestream exclusively for our Trading Lab community members right around when the fifth candle of yesterday's Tokyo session closed. Here on YouTube, I'll walk you through the technical analysis and trading scenarios I was explaining live at that point, focusing only on the key points as we go.

First, let's talk about market bias, which is always the first thing I cover in our Trading Lab community. Since the Tokyo session open, after the outside bar on the second candle, price has moved in a completely sideways range, meaning the market has no clear direction at all. Looking at the price action inside that range, doji candles stand out a lot, so I explained that this basically isn't a situation where you should pick a direction and trade.

First, I explained that we should wait to see which way this sideways range that started from candle 2 breaks out, and only then set our bias, and that if we did decide to trade, we should keep it to small scalping trades at most, ones that open and close completely inside this trading range. I also walked through the price action and the whole thought process that led me to this judgment. So where exactly did I start that breakdown?

Right from this first 1H candle on the 20th, at the London open. I only covered the very first hour after the London session opened. Nothing beyond that, just that one opening candle on the 1H chart.

Looking back at how London traded, gold printed a big bearish candle into the Tokyo session close, then formed a strong bullish reversal candle after. Would we get upside follow-through, or a downside breakout that also swept stop losses under that bullish reversal candle, and keep falling from there? That was the key turning point the gold market had reached, but ultimately, right after this moment here, the upside follow-through was negated, as the second bar of the London session printed a bearish candle of equal size.

On the other hand, the downside breakout also failed, with no follow-through, as bar 5 basically confirmed that the breakout driven by bar 4's bearish candle had ended in failure, Recently, the bulls were first forced to take their stop loss here, and then, since the downside follow-through was rejected, the bears who sold here also got stopped out, so there was likely no clear directional bias around here, and it was a situation where both bulls and bears would probably avoid entering aggressively.

Then at the New York session open, we got a bearish doji, and price tried an upside breakout, but looking at how the body sizes were developing, even though this wasn't a key breakout level, it formed an extremely large bullish candle, which was most likely a climactic bull bar. After that, a bearish reversal bar appeared, and a small downtrend started to form from there. Then, at the Tokyo session open, a doji formed, but the second hour's candle was an outside bar that closed as a doji, so the price action showed the market had once again lost its sense of direction.

Recently, moves in both directions, up and down, had been rejected, and the price was stuck in a small sideways range, so I explained to you all that this was a directionless market environment, one where there was no real trading edge worth taking a position on. So how did gold really move in the end? Price action played out toward the scenario I laid out for the Tokyo session open.

On the 1H chart there was no clear direction. Price tested an upside breakout just before the New York session, but the open rejected it, and the range resumed. After testing the top of the range, the range shifted higher, and then price moved down to test the bottom.

Testing the upper boundary and then the lower one is a clear, textbook range pattern. Then at the Tokyo session open, we got a big bearish candle right away. That's pretty rare.

Today we saw one of those rare cases where a strong downtrend starts right from the open. The second candle was a bullish doji, and the follow-through to the downside was still continuing. So I read this bullish reversal candle as just a temporary pause from exhaustion.

We're still inside the trading range, but price normally returns to the trend direction, which is why I gave you a bearish bias at the start. How I decide my bias from here, along with the detailed trade scenarios, is explained inside our Trading Lab community. That wraps up today's gold analysis.