Leap Ahead with a Bearish Divergence on Gold Futures

The Leap Trading Competition: A Chance to Trade Gold Futures

TradingView’s "The Leap" Trading Competition is an opportunity for traders to test their futures trading skills. Participants can trade select CME Group futures contracts, including Gold Futures (GC) and Micro Gold Futures (MGC).

Register and participate here: TradingView Competition Registration.

This article presents a structured short trade setup based on a bearish divergence identified using the Commodity Channel Index (CCI) and key pivot point levels for confirmation. The trade plan focuses on waiting for price to break below the pivot point at 2866.8 before executing the trade, with clear targets and risk management.

Identifying the Trade Setup

Bearish divergence occurs when price makes higher highs while an indicator, such as CCI, makes lower highs. This signals weakening momentum and a potential reversal. The Commodity Channel Index (CCI) measures price deviations from its average and helps traders identify overbought or oversold conditions.

Pivot points are calculated from previous price action and serve as key support and resistance levels. The pivot at 2866.8 is the reference level in this setup. A breakdown below this level may suggest further downside momentum, increasing the probability of a successful short trade.

The trade plan combines CCI divergence with pivot point confirmation. While divergence signals a potential shift, entry is only considered if price trades below 2866.8. This approach reduces false signals and improves trade accuracy. The first target is set at 2823.0, aligning with an intermediate support level (S1), while the final target is near S2 at 2776.2, just above a UFO support zone.

Trade Plan and Risk Management

The short trade is triggered only if price trades below 2866.8. The stop loss is placed above the entry at a level ensuring at least a 3:1 reward-to-risk ratio.
Profit targets are structured to lock in gains progressively:

• The first exit is at 2823.0, where partial profits can be taken.
  
• The final exit is near 2776.2, positioned just above a UFO support level.
  

Stop placement may vary based on the trader’s preferred risk-reward ratio. Position sizing should be adjusted according to account size and market volatility.

Contract Specifications and Margin Requirements

Gold Futures (GC) details:

• Full contract specs: GC Contract Specifications – CME Group
• Contract size: 100 troy ounces
  
• Tick size: 0.10 per ounce ($10 per tick)
  
• Margin requirements depend on broker conditions and market volatility. Currently around $12,500 per contract.
  

Micro Gold Futures (MGC) details:

• Full contract specs: MGC Contract Specifications – CME Group
• Contract size: 10 troy ounces (1/10th of GC)
  
• Tick size: 0.10 per ounce ($1 per tick)
  
• Lower margin requirements provide access to smaller traders. Currently around $1,250 per contract.
  

Leverage impacts both potential gains and losses. Traders should consider market conditions and margin requirements when adjusting position sizes.

Execution and Market Conditions

Before executing the trade, price must break below 2866.8. Additional confirmation can be sought through volume trends and price action signals.
If price does not break the pivot, the short setup is invalid. If price consolidates, traders should reassess momentum before committing to the trade.

Conclusion

Bearish CCI divergence signals potential market weakness, but confirmation from the pivot breakdown is key before executing a short trade. A structured approach with well-defined targets and risk management increases the probability of success.
For traders in The Leap Trading Competition, this setup highlights the importance of discipline, confirmation, and scaling out of trades to manage risk effectively.

When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: tradingview.com/cme/ - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.

General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.