It's one thing to let your profits run on a trade, but it's also true that it doesn't make sense to take unjustified risks with profit that's on the table. So when I wrote recently to my trading signal clients that I had concerns with what I saw unfolding in the spot Gold (XAUUSD) market it was to protect the profit on the table. On our open long trade I increased the trailing stop to lock in gains of +1.3% for the remaining portion (the other half of this trade was closed for a +3.8% gain).

Here I'll explain why I'm a bit nervous and outline a trading strategy for managing risk at this time.

Spot Gold recently posted a big range day that opened near the high and closed near the low.

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. But over the past year Gold has delivered three more of these reversal days, and in each case it made further fast and furious declines within four trading days.

The spot Gold market is currently trading near 667.0. I have exits above and below, at 669.0 and 656.81. Both exits will deliver profit, but the 669.0 exit I've just added is the difference between +3.2% and +1.3% gains, which is worth having if available. On an hourly chart of XAUUSD it looks like it should push to at least 669, but no market comes with guarantees included.

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

* Spot Gold may soon head to one of two extremes. If it pushes past 677, it should go all the way to $750 or more. So I'm placing a conditional stop buy entry at 677.0. If this is entered the initial 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.

* It's always dangerous to insist that the market "proves you right" and moves in the direction you anticipate. 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! Gold can leap up to over $750 or slump to under $540. I don't care - 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).