Two days ago I wrote in my update to trading signal subscribers that I didn't like what I saw unfolding in spot Gold (XAUUSD) and increased the trailing stop to 656.81 to lock in a +1.3% gain on this portion of the trade (the other half was closed for a +3.8% gain).

Why am I nervous? If there's more market risk right now, what is the best way to manage it?

Gold recently delivered a bearish reversal day: a big range day that opened near the high and closed near the low.

There have been three more of these reversal days during the past year, and in each case XAUUSD made further fast and significant declines within four trading days. Of course these reversal days don't always deliver further rapid declines, and if spot Gold pushes above the high of the reversal day at 677, then that is a very bullish sign.

Looking at an hourly chart, XAUUSD looks as though it should push to at least 669 before any decline unfolds (it's currently near 667), so I'm placing a "take profit" exit at 669 as a OCO (one-cancels-the-other) trade with the current stop of 656.81. Both exits will deliver profit, but it's the difference between +1.3% and +3.2% gains, which is worth having if available.

OK, so one of these exits will be hit. Then what?

* If spot Gold continues up and pushes beyond 677, it should go all the way to $750 or more. So I'm placing a conditional stop buy entry (buy-at-a-stop) at 677.0. If this is entered the stop-loss is 656.81.

* If spot Gold plunges down from here (like it did after the May 2006 reversal day), I will enter short at 640.0 (sell-at-a-stop), with an initial stop-loss at 676.0. In Elliott wave terms, this would signal a wave 3 decline and Gold should eventually continue down to under $540.0.

* So either way, there should still be a good move to trade and the opportunity should unfold very soon - the only unknown is "which way?" If you've read my recent article on the global spread of risk aversion, you'll know that I think Gold is heading north. But the beauty of this strategy is that I don't have to be right! I don't really care what the market serves up as I can make further profits either way.

View the complete article, including a chart of spot Gold, showing the reversal days, and a link to the piece on global risk aversion, at www.TrendSensor.com/MarketBrief/

DISCLOSURE: Murray Nickel holds a long position in spot Gold (XAUUSD), opened at $648.40.