Bearish Bias Confirmed via SMC, VSA & Fibonacci Confluence
The gold market (XAU/USD) continues to exhibit strong bearish characteristics as institutional order flow drives price lower, with key confirmation from market structure, volume behavior, and Fibonacci retracements. In this article, we break down the current price action and map out a high-probability trade setup using Smart Money Concepts (SMC), Volume Spread Analysis (VSA), and Fibonacci tools.
Smart Money Concepts (SMC): Market in Distribution Phase
The price structure on the 5-minute chart shows a textbook distribution phase followed by consistent Breaks of Structure (BOS) to the downside. After ranging and forming equal highs, the market delivered a clean liquidity sweep before plunging lower.
Key observations:
- Multiple CHOCH (Change of Character) events occurred at the transition from bullish to bearish order flow.
- Subsequent BOS to the downside validated the bearish trend.
- Notable supply zones around 3,185–3,190 and 3,150–3,155 acted as ideal points for institutional selling pressure.
- The most recent BOS at 3,130 confirms continued bearish momentum.
The market is clearly under institutional distribution, with price reacting strongly to predefined supply zones.
Volume Spread Analysis (VSA): Confirming Selling Pressure
Volume behavior further supports the bearish bias:
- A high-volume wide-range red candle near the current low (~3,120) indicates climactic selling.
- This could represent either:
- Continuation of bearish momentum if volume persists, or
- Potential stopping volume if followed by low-volume tests and bullish confirmation.
Earlier rising volume before the drop from 3,185 signals professional selling entering the market at premium levels, not retail buying.
VSA suggests increased institutional participation on the sell side, and warns us to be cautious of any retracements that lack strong volume support.
Fibonacci Levels: Confluence with Supply Zones
A Fibonacci retracement drawn from the swing high (~3,190) to the recent low (~3,120) gives the following key levels:
| Level | Price Zone | Confluence |
|---|---|---|
| 38.2% | ~3,150 | Matches lower supply zone |
| 50.0% | ~3,155 | Mid-level resistance |
| 61.8% | ~3,162 | Optimal entry zone for shorts |
These levels align perfectly with prior supply zones, creating a powerful confluence zone for potential re-entries on a bearish retracement.
Trade Setup: Bearish Continuation
Primary Setup – Short on Pullback
Entry Zone: 3,150–3,162
Reason: Confluence of supply, Fibonacci retracement, and prior structure
Stop Loss: Above 3,165
Take Profit 1: 3,120 (recent low)
Take Profit 2: 3,100 (clean imbalance + psychological level)
This setup allows for a favorable risk-to-reward ratio and aligns with the higher-timeframe bearish narrative.
Alternative Setup – Aggressive Continuation Sell
Entry: Break and close below 3,120 on strong bearish volume
Stop Loss: Above 3,130
Target: Trail lower structure, with target zones at 3,100 and 3,090
This approach is suitable for momentum traders who prefer to trade continuation instead of pullbacks.
Countertrend Consideration – Only If Support Holds
A speculative long trade can be considered only if there is:
- A bullish volume divergence
- A bullish engulfing pattern near 3,120
- Fading sell pressure (narrow spreads, low volume)
Entry: 3,122
Stop Loss: 3,115
Target: 3,138 / 3,150
Bias: Short-term relief rally in a larger bearish trend
Conclusion
All three analytical frameworks—SMC, VSA, and Fibonacci—align to support a bearish continuation in XAU/USD. The market has respected supply zones and structure levels impeccably, while volume behavior signals ongoing institutional distribution.
Traders are advised to:
- Wait for price to retrace into the ideal Fibonacci + supply zone,
- Watch for volume confirmation (either weakness or climactic rejection),
- Manage risk tightly due to potential volatility around recent lows.
Disclaimer
This analysis is for educational and informational purposes only and does not constitute financial advice. It is not intended to be used as a basis for any investment decision. Always conduct your own research or consult with a licensed financial advisor before engaging in any trading activity.
