Featured in “Your Trading Edge” Magazine, July/August 2020 Edition.
In this interview, we ask Lachlan about trading tactics for a post COVID-19 world. Lachlan is well known for his commentary on the gold market and as we navigate carefully through the minefield that is COVID-19, we asked Lachlan for his forecasts. Lachlan is also well-known for not holding back on his opinions, so we are super excited to be interviewing him again. YTE – The world is continuing to grapple with COVID-19. How is this affecting the gold market, and have you experienced any difference in your trading?
Hi there and thank you for having me! It is great to be back in the world of YTE. If you do not mind, I am going to answer the second question first as that is the easy one. There has been no change to the style of trading I use, or the strategy that I follow during the COVID-19 pandemic.This is because we trade the market both up and down, so it does not matter how good or bad the economic environment becomes, there is always going to be a great trade up for grabs. Understanding that my average trade is finished in under 7, I can clearly fit a lot of trades into a single trading day. Rise or fall, we will be jumping on the market whenever we can.
When it comes to the gold market, I have always suggested that gold is the global currency of fear. If fear in the markets is rising, so is gold. Likewise, if fear in the markets is falling, so is gold. Naturally, the COVID-19 pandemic has generated a significant amount of fear in the markets and this has had a profound effect on gold. I am very much of the opinion that we have a long way to go in the COVID-19 journey, and as such, gold will continue to produce solid trading opportunities for both beginner and experienced traders alike. Gold turns over 100’s of millions of USD on a daily basis. If your trading goal is $100.00 USD per day, great. If your trading goals is $1000.00 AUD per day, also great. Gold is a great market to start your trading journey with and it could be your career for a long time in the trading market.
What can YTE traders do to forecast where gold is going and then build a strategy around that?
That is a great question. If I can, I would like to give three tips.
Tip 1. Think like a hedge fund.
The majority of hedge fund traders I communicate with are looking for large profit targets with exceedingly small risk on trade initiation. One way to achieve this is to enter the market in a 5-Minute Chart, while using a daily, weekly, or even monthly chart to set your trade target. Your intent is to limit the risk on your trade to less than 2% of your trading capital and seek to set targets equivalent 10% of your traded capital. This is a risk to rewards ratio five times in your favour and is a great platform for successful trading.
If you wanted to achieve that in the current trend on gold, you would seek to find a valid 5 minute chart trade and use this trade to buy into the market using the very little risk that a 5 minute chart trade requires. This is the exact strategy I teach all of my traders globally when they have some experience and are developing their confidence in trading.
Tip 2. Understand major stall points in the market.
One of the best target setting guides I have ever used is a Fibonacci Extension (some say Fibonacci Projection). The Fibonacci Extension is extremely popular globally for target setting and as such proves to be a powerful self-fulfilling prophecy within the financial markets. If you are setting your targets in a similar manner to most other professional traders globally, you will find that your targets and hence your likely market stall points are inevitably accurate. This accuracy gives you a significant advantage in the market not shared by other less skilled traders.
To demonstrate how accurate Fibonacci Extensions can be, I have included Image 1 to explain the use of a ‘Fib’. All you need to do is find a stair step in the market and use this to draw your extension.
In the case of Image 1, I have drawn a green arrow over the buyer dominant candles, then drawn a red arrow over the seller dominant candles. If you are new to trading, the buyer dominant candles push the market up and the seller dominant candles push the market down. Please note that I have picked a stair step in the market that is in favour of the buying trend. This is critical to placing a high probability extension on our chart. I have also drawn a black dotted arrow on the chart to act as my extension. My intent is to predict, accurately, where the market is likely to extend to, hence the name extension. I have drawn a square on the chart to show that the market is bouncing off the 100% Fibonacci Extension. We say in this case that the market is honoring the Fibonacci Extension and is hence highly likely to move on to the next Fibonacci Extension.
On image 1 the 100% Fibonacci Extension is at a price point of 1762.2. If gold does move to its next Extensions level, those being the 133% Fibonacci Extension, and one of its favorites, the 141.4% Fibonacci Extension, we will see prices of 1858.3 and 1881.5, respectively. These targets are highly likely to also form market stall points on gold’s journey up to the magic
number of 1900, a gold price we are highly likely to see in 2020. Please also note the COVID-19 spike down in price that I have labelled on Image 1. This spike down coincided with a declaration by Donald Trump that the US had complete control of COVID-19. Whether you agree with his timing, or not, the price of gold dropped quickly, as the fear of the pandemic taking hold globally also dropped quickly. The drop did not last long and the uptrend on gold has continued.
Tip 3. Avoid OTC Brokers if you want to trade well.
As a Futures trader I can achieve all the above, very accurately, as I do not trade through conventional over the counter (OTC) brokers like the FOREX, CFD and Binary Options traders of the world. I am happy to say that my chance of success is massively enhanced due to the ‘broker free’ trading environment I trade in.
As a Futures trader, I trade directly to and from The Chicago Mercantile Exchange (CME) via a regulated clearinghouse. This means that there is no one on the other side of the markets to trade against me when I take my trades. There is also no one to manipulate any aspect of the markets while I am trading. Therefore, I can get on with the job of being a great trader. Every trader globally can trade without broker interference if they choose. Now I do not want to add a negative to the current global crisis, however, this is a massive point for YTE readers globally to acknowledge and then take advantage of.
Lachy, how should our YTE readers seek to make profits during COVID-19?
I do not want to sound negative, but I do believe that we are a long way from the end of the COVID-19 journey. Firstly, may I suggest that all YTE readers, globally, seek to trade futures over any other form of market. Secondly, seek to use a strategy that allows you to trade the markets both up and down. Thirdly, avoid holding positions overnight and/or over the weekend to protect yourself against geo-political market
Lachy, thank you again for being part of YTE!
As always, my absolute pleasure. Stay safe!
Lachlan Elsworth is the Founder and Lead Trader at the International Day Trading Academy, based on the Gold Coast of Australia. Lachlan has been trading varied markets for over 25 years and now specialises in teaching and trading Futures exclusively. Lachlan is emerging as one of Australia’s most well-known educators and will soon be back on the world stage.
To watch an ‘On-Demand’ 90 Minute Trading Lesson with IDTA simply visit: