Better revenge with gold

This past Monday, we opened a short position in the December micro gold futures contract. We were counting on a customary seasonal decline this time of year to put a damper on gold's news-driven rebound. As can be seen, that turns out not to have worked so well; the trade has hit our daily mental stop and, unless there is a significant retreat this afternoon, we'll probably cover shortly before the close to limit the loss.

A situation like this is a sore temptation to take a 'revenge' trade by adding to the short position instead of covering. Revenge trading is never a good idea, as it can cause losses to spiral out of control.

There is, however, a similar trade that could be very profitable. Note that the fairly reliable Williams %R oscillator is up in overbought territory. The vengeful could (after cutting the current loss) open a high-probability position by waiting for RSI to move up past 70 and then opening a small short position, perhaps scaling in as long as both indicators are in overbought territory, and taking profits when a decline in gold's price moves W%R back down to an oversold reading.

Always watch your charts and manage your risk.