Backtesting gold (XAUUSD): pips, lot size and a simple strategy to test
Gold is one of the most traded markets among Nigerian traders. It moves a lot, which is exciting and dangerous: the same lot size that is sensible on EURUSD can wipe out an account on gold. Backtesting is the cheapest way to learn how it behaves.
How gold is quoted
XAUUSD is the price of one troy ounce of gold in US dollars, for example 2,350.45. One standard lot is 100 ounces, so a move of $1 in the price is worth $100 per lot.
| Lot size | Value of a $1 move | Value of 1 pip (0.10) |
|---|---|---|
| 1.00 (100 oz) | $100 | $10 |
| 0.10 (10 oz) | $10 | $1 |
| 0.01 (1 oz) | $1 | $0.10 |
Pips on gold differ between brokers. In PlayBack Forex one pip on gold is 0.10 (a move from 2,350.00 to 2,350.10). Some platforms count 0.01 as a point. Always think in dollars per lot, and the confusion goes away.
Sizing a gold trade for 1% risk
Say your account is $1,000 and you risk 1% ($10) per trade. Your stop loss is $5 below your entry (50 pips).
- Each 0.01 lot loses $1 for every $1 move, so a $5 stop costs $5 per 0.01 lot.
- $10 risk ÷ $5 per 0.01 lot = 0.02 lots.
The same account trading 0.10 lots would lose $50, or 5%, on that stop. That is how gold accounts get blown. The order ticket in PlayBack Forex shows the money at risk before you click Buy or Sell, and can size the trade for you from a risk in dollars or percent, so you can practise sizing until it is automatic.
A simple strategy to backtest: the London breakout
This is a starting point to test, not a recommendation. The rules are clear enough to backtest honestly:
- On the 15-minute chart, mark the high and low of the Asian session (1:00 to 8:00 am WAT in summer).
- After 8:00 am WAT, buy if a 15-minute candle closes above the high; sell if one closes below the low.
- Stop loss on the other side of the range, or at most $8 away; skip the day if the range is wider.
- Take profit at 2R. Close any open trade at 5:00 pm WAT.
- One trade per day. Skip days with major US news at the London open.
Run it over 3 to 6 months of history and write down every trade. Then change one thing (a 1.5R target, a range filter) and test a different period.
Things that make gold different
- Big news reactions. US data (NFP, CPI) and Federal Reserve decisions can move gold $20 or more in minutes.
- Wider spreads than major currency pairs. Set a realistic spread in your PlayBack settings.
- It trends hard and then ranges for weeks. Test across both kinds of period before you trust a result.
Try it on real history
Open PlayBack Forex in your browser, pick a pair and a start candle, and trade the chart as it unfolds. Free to start.