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Gold & Silver in a LT rally

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So if Indices are close to a top, as I have suggested in other posts, and USD is closing on a strong rally phase (maybe a month or so to go) what of Gold/Silver?  Of late these precious metals have been impacted by USD (travelling inversely to the dollar) but if Indices do begin a major Bear phase then the flight to safety would push both USD and precious metals into a strong rally.  In fact I believe USD has already started a strong long term rally and of late has been in a natural retrace prior to a major push north (see my post on the "are Indices over-valued" post.  But what about Gold and Silver.

The monthly Gold chart shows a very long term support trend line, which remains strong.  We can see the major rally to the commodity highs in Sept 2011 and since then a classic A-B-C retrace.  If this holds (i.e. if the market does not break below the LT trend line) then we have already seen a major 1-2 wave move pointing to a huge motive wave rally to come.  The Weekly chart shows a series of 1-2 retrace moves [Purple and Pink labeling] within a large Triangle formation with the LT supporting trend-line as the bottom line of the Triangle.  Furthermore there is a potential Head & Shoulders formation (blue circles) and a very nice associated neckline, which is also the top of the aforementioned Triangle.  This is a strongly Bullish set up in my opinion, which will only be negated by a significant break of the LT supporting trend-line/Triangle. 

Zooming in to the Daily we can see a pair of tramlines [green] on the retrace move down to the recent bottom where a significant reversal pin bar can be seen on both the Weekly and Daily charts (very bullish).  And it looks like the LT trend-line is still strong with a short term 1-2 retrace completion {blue labels} that occurred on Friday.  My hourly chart shows this move in more detail.  I am expected another 1-2 retrace either before a breakout from the tram-line or afterwards with a retest of the tram-line.  Either way a breakout of the tramline is a Long trade trigger for me.

 

I am long from the LT tramline and looking for confirmation of the move to add a long term rally campaign.  Out of interest Silver looks to have already broken out.  I will be waiting for a retrace back to support levels to seek a Long on Silver also.

Thoughts?

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Quick update to my original post, current 1 hour charts showing a much faster retrace than I previously reflected but still within the overall assessment.  In fact on Gold it is better because the market is currently showing a retest of the support area and bounce away.  If this holds then the break of the Daily tram-line could be swift.  There was a similar breakout and retest of support/resistance on Silver, not yet confirmed as a failed retest but one to watch as it is path-finding for Gold at present.

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I agree @TrendFollower that if Gold breaks below the recent lows and my long term trend-line then 1175 is the next line of resistance, however it is even more likely, in my opinion, that this market will drop lower than that if the rally doesn't materialise.  If and when stocks do capitulate the Bull gold will return to favour as a safe haven I am sure, even if only because of habit and herding instinct.  USD will be the other safe haven, maybe also CHF, linked to gold.

Perhaps if crypto had a few years to mature it could be an alternative but it is not mainstream and is too volatile and unknown for most people, other than the early adopters.  But I am not a fan of Cryptos and predicted the Bitcoin drop, I'm sure there are some archived old posts of mine on the subject from before, so you have to take my comments in that context.  I do believe that the Crypto bear is not over yet and am not sure Crypto in it's current first generation will survive, although block-chain probably will.  As you say it will be interesting to see but I won't be trading it...

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If Silver is about to breakout in a wave 3 this could be a rampaging move for both Gold and SilverXAGUSD-4-hours021018.thumb.png.a8c96848116f0669c32856a040eb0ff6.png

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Gold is in retrace following the break of the Daily chart Tram-line.  A failed retest of the breakout zone sets up a strong rally away in my opinion.  I wonder whether this could be fueled by a turn down in USD..?  Similar but more exaggerated in Silver, as usual.

Anyone trading Gold/Silver?  Got a view?  Please share.

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my Gold trade Long is looking a strong contender.  Maybe Indices softness and USD potential weakness?  Maybe portfolio balancing with a risk off mindset.  Who knows.  Point here is the bounce off the LT supporting trendline and the subsequent break and failed retest if the Daily tram-line, together with PMD at the right points and price action rally today are building the probability of a long and strong Gold rally in my view.  Looks to be a better bet than most other markets at present.

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@TrendFollower, agree with your assessment of the Gold bull, except for one detail, the bull started well before the credit crunch (I don't call it the financial crisis because that is yet to come... And note that therefore all my assessments are predicated on this most Bearish sentiment!!!).  During the Gold bull to Aug 2011 all major commodities ran up in a massive rally and then peaked out.  Oil, Copper, Silver, they all posted the same moves and then peaked out and dropped back almost as dramatically, why?  No idea but there are lots of opinions about...  The favourite one is China...  Whatever, the price action charts tell us that the bull was a bubble that burst in dramatic fashion.  During this time there wasn't much correlation between commodities and stock and the likely reason for that, in my non professional opinion, is the market generally is not operating in "perfect" conditions because of unprecedented central bank interference (manipulation!).  If anyone else was doing this the SEC would come down on them like a ton of bricks!!!

In terms of fundamentals then the only thesis I have is that we are about to return to "real" fundamentals as stocks bubbles start to deflate and then burst.  Commodities have already led the way down and the bond market is getting shaky as yield curves rise.  The VIX is at rock bottom and that never lasts, unless this time is "really different"...  But I haven't heard any credible thesis as to why time Gordon Brown would e right about "no return to boom and bust".  And even he now is fretting about another crisis...  Now central bankers are trying to slip quietly out of the party...  If or when this all happens then Gold returns to its ages old role as a store of value.  Gold really is nothing other than this if you consider it, as it has virtually no industrial use because of its uniquely chemically inert nature, which is also why it is a good store of value.  I don't buy bitcoin and other Cryptos as an alternative as it is too alternative at present for most people's taste.  I do expect Cryptos to fail, as many new technology booms do initially only to find their true value out of the ashes of the first bubble bursting (that is blockchain for me).  We have already seen the main part of this but more will come leaving something else to rise out of the ashes of the real financial crisis to come.  I'm betting this will be governments taking control of blockchain for paperless money and maybe even a new accounting model (The Institute of Chartered Accountants in England & Wales are studying blockchain for this exact reason).

Regarding Gold technicals, I can't really teach the entirety of the methodology I use here but suffice it to say I combine a number of well establish technical methods including:

  • Elliot waves
  • Classic charting patterns (inc price gaps)
  • Momentum divergences (Positive - PMD; Negative - NMD), also sometimes RSI but only as a supportive.
  • Support/Resistance levels (don't really care if this is because of supply/demand dynamics or not)
  • Tram-line trading (i.e. momentum moves contained within a pair of diagonal parallel lines until there is a breakout)
  • Fibonacci retrace levels, often align with support/resistance zones
  • Commitment of traders data (US only) - contrarian stance vs Financials, I trade with the commercials
  • Price action

I don't need all to align but the more signals I have the higher the probability of the eventual trade I take (If I am reading it right!  But this is trading so can always be wrong and have to guard against that.

So to answer your question specifically, for Gold I have the following technical set up (see previously posted charts)

  1. An overall concept of why Gold could turn into a long and strong Bull
  2. A long term supporting trend-line, being well respected (see monthly chart)
  3. A massive peak in Gold and retrace to the Fib 50% level (typical for Gold) in early 2016 where it bounced off that LT trend-line and rallied up to what I think is an EW1 before retracing again.  There was strong Positive Momentum Divergence (PMD) at the 2016 bounce point too.
  4. The next retrace went down to the Fib 76% in what I believe to be an EW2 (purple 2).  It described an A-B-C form, which is indicative of a retrace move rather than a motive (trend direction) move, which goes in a 5 wave motion according to EW theory.  Such a deep retrace is associated with a trend direction change and prepares the market for a large motive wave in the opposite direction.
  5. The next rally didn't make a higher high, which is a warning, but so far has retraced in A-B-C form to the bounce off the LT trend-line in Aug 2018, this time with a spike through and bounce away pin bar (Price action - Bullish).  There was strong PMD on the Daily chart at this point.  Additionally this retrace came back to the Fib 62% from the previous high (Purple 1) and Fib 76/78% off the most recent high (Pink 1).
  6. After this there was a short rally and the current retrace (so far in A-B-C to blue 2).  This culminated (so far) again on the LT trend-line with an inside bar formation (Price Action) this time and then rallied up to break the Daily chart tram-line pair (green lines) that had contained the retrace down from pink 1.  This break and failed retest (so far) is also bullish if we get a sharp rally away (still pending).
  7. Add to all that a potential Head & Shoulders formation on the Weekly chart with a neckline around the 1450 resistance zone, which will also eventually be a great trading point if we get a rally up to there.

That is a lot of positive support for a strong rally for me BUT there is also a scenario where there is a return to the Fib 78% area (monthly/Weekly chart) for a slightly lower purple 2.  This would mean a break through of the LT trend-line, which would be Bearish.  So at this point I would be less certain of the set ups.  Got to be aware of all the scenarios (and try to find the one you haven't spotted yet...).  Also got to play the market price action no follow your biases out the window (this is where money management comes in!).

In terms of how I traded this.  Previously I swung traded the 2016 50% fib bounce and the W1 retrace.  I did not manage to get in on the pin bar in August but have traded Long at the blue 2 point and recently at the green tram-line retest area.  My lower trades are stop protected at break even so I am running low risk on the retest zone trade only.  If we see a sharp rally away from this zone I will be in full-on Long term long trading campaign mode, swing trading the big moves.

Happy to discuss any individual aspect of all that off specific questions or better still any alternative views!!!

PS: looks like a bit of a bounce this morning, will it be sustained through NFP?  Probably get the usual volatility OR a rapid rally away. 

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Indeed we will have to see @TrendFollower although I don't see Brexit as much of an issue too small to impact.  Now an EU/Euro implosion would be but hard to draw a direct line from Brexit that.

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Focusing purely on technicals for a moment, my overall assessment remains favourable to a rally, unless the LT trend-line support is broken.  

Weekly chart showing a nice bullish pin bar and bounce away from the LT Trend-line followed by a secondary failed test of the same line plus PMD at W2 (pink).

Daily chart shows the Blue 1-2 retrace in an A-B-C form, which suggests the next move will be a motive rally (Trend change).  We can also see the break and retest of the Green tram-line is so far sustained.

The Hourly chart shows a possible Triangle consolidation formation (pink lines) a break of which suggests a resolution to the question of which direction the next move will take.  However in the case of a break lower there is a strong chance that a retest on the Green tram-line at 50% fib could halt and turn the Bears.  Therefore even if price does break down if it turns again at the 50% fib this will suggest the Bulls are taking control.  Ultimately a break of resistance at the 1,210-1,212 area will seal the rally for me.XAUUSD-1-hour051018.thumb.png.927226b8f0b8bfe707e7756afbac360b.png

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I got the green tramlines on my daily chart wrong, the lower one was too weak in terms of good touches, should have known.  Still that is what price discovery is all about, and good money management of course.  I closed out all my Longs when I saw that the break of the green tram-line was weak and Silver went into reverse, always pays to watch cross market action.

The market came back down to my long term trend-line and stalled there.  It is worth noting that the LT trend-line is drawn on the monthly chart so it can be penetrated some way on shorter time-frames and still hold, so long as by the end of the month it is back above or close to.  This also means you cannot rely on it as a turning point on shorter time-frames, it is indicative only.

Still this zone is clearly a battleground for Bears and Bulls with 3 tests so far, including the mid Sept big one.  I am expecting another, near term and, as mentioned previously, whether this zone holds or is broken will be a key factor in medium term prognosis for Gold (and Silver).

On my Daily chart I now have much better tram-lines, actually describing a Triangle (they are not running parallel).  My overall assessment is unchanged in that there are 2 main scenarios as follows:

  1.  Hold and rally in or around the LT trend-line with an eventual breakout of the Triangle into a strong rally
  2. Break through the LT trend-line and associated support zone bringing up a lower Wave 2 retrace point (Purple 2) and then rally OR a full on Bear phase (but that latter is a ways off yet and doesn't fit my cross market assessments so parked but not discounted)

The strong PMD on Daily charts for both Gold and Silver are supportive of a turn and rally scenario.  Silver in particular has made a tram-line break that was tested a couple of times and held.  I would not be surprised to see Silver retest this level around the Fib 76/78% again before the rally gets going.  Therefore we might also expect  another short time-frame test of support on Gold.  If precious metals do hold and rally there is no knowing how high they will go if we also see a stocks crash.  I can foresee the precious metals rally beginning ahead of a stocks top out as nerves drive investors to hedge their exposures but greed stops them from dumping stocks yet.

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There is one additional scenario I thought worth sharing, which fits better with my assessment of Silver.  That is a temporary breakthrough LT trend-line support to complete an A-B-C retrace at blue 2, Fib 76/78%, but does not breach the mid Sept lows and rallies away.  This fits better with the EW labeling also.XAUUSD-4-hours_091018.thumb.png.7f74a3a44dc6d0c8ae6d0a72f61bd633.png

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With all the bearish action on stocks one might have thought Gold and Silver would explode into that rally I have been mapping out.  They didn't, rather they went into a small slide/consolidation with Gold being a bit more bullish.  USD didn't rally either, which makes me think the stocks Bull is not quite over with.

It is nice to have markets behaving in concert but it often doesn't happen and that often doesn't mean much.  I stick to the technicals and trade off those signals, regardless of other so-called fundamentals or news.  In the case of Gold and Silver I got some buy signals over the last day or two.  Gold went into a small consolidation triangle after a retrace move back to the LT trend-line, which remains stubborn support.  It then broke out of the triangle into a rally phase with a brief retrace back to the ST support level before rallying away.  If this continues the Daily Triangle upper line comes into play.  A strong break here will be very bullish, a rejection may mean another leg down to the LT trend-line.

Silver is showing similar but more volatile.  A retrace back to the original Daily tram-line breakout (support level) was forestalled with an early turn off 1 hour ST support and a break out of the 4 hour chart Triangle (pink lines).  If this is sustained in line with Gold rally then the odds are for a strong rally in both.

For those who like a bit of fundamentals:

  • USD weakness supports commodities (Gold/Silver is quoted in USD as an FX cross)
  • Professional investors keep a balanced portfolio for risk purposes (although I think this is a bit crazy myself) so the idea that investors would be buying gold simultaneously with stocks is not so strange
  • If the stock markets bomb, Gold/Silver will rally, this is almost the only thing that history guarantees us
  • If stocks rally from here the worry about exposure will also increase, Gold is a hedge

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Agreed @TrendFollower we absolutely need Gold to not just stay above 1200 (as in hover) but to push on through 1220.  May get some retrace/retest action during all this as there is a fair bit of resistance to get through but I don't think we need to see stocks crash for this to happen.  USD falling is sufficient to lift precious metals but a long term rally would probably not come until stocks do top out and go into a long term Bear market.  However I might expect Gold to be up around the 1360-1400 mark at that point and the surge to break my Weekly Chart H&S neckline.  That is my road map in any case. 

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I think you meant £1225 there @TrendFollower.  I think a combo of yesterday's stocks drop, inherent uncertainty today, USD weakness and just general oversold nature of Gold/Silver on technicals is driving for now.  I agree, and it is part of my game plan, that Gold will not break 1400 mark without major Bearish stimulus elsewhere (be it stocks or bonds or both) so that is worth watching too to assess Gold.

Also agree your point re Silver.  Indeed we have seen that amplification in price action of late.  I think Silver was just on a down amplification after having been more bullish than Gold recently and I expect Silver to rally harder to it's equivalent of 1400 for Gold, which I think is around about 1800.

Regarding retrace from the 1400 area for Gold (or wherever this rally phase tops out). I would not expect price to see 1200 again (subject to how high the rally goes and accepting that a near term retrace back to 1200 is eminently possible).  Let's say price goes to 1400 and then retraces before a push through, then I would expect max a Fib 50% turn (about 1280).  This is all speculation of course but if we have seen a major turn in the market on both Gold and Silver then the next phase rally will be an EW wave 3, which would run hard and long (i.e. retraces would be more shallow).

Net, my current feeling, subject to what happens in Stocks and Bonds over the next few days, is for a rally up towards 1400 and a retrace before a very significant rally wave to break the potential H&S neckline and go way beyond.  As you say, this will probably only happen on a major Stocks/Bonds downer but it could begin just on the fear of that...

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You raise an interesting topic @TrendFollower and one that was much debated a while ago.  Are we going to see a period of runaway inflation caused by the central banks trying to inflate away debt OR will this backfire and drive the global economy into a deflationary depression as a result of excessive monetary easing (love that phrase, hardly appropriate for run away money creation...).  Let's face it a massive markets crash is more aligned to a depression  Regarding Gold/Silver, in normal circumstances gold is seen as an inflation hedge and the reverse is also true.  However a full on depression is not normal.  This is scary shhhh and in such circs I would expect a rush to something tangible as money supply contracts and people loose faith in it, e.g. Gold.  I might also expect real assets to be in vogue such as copper etc. but who knows, I wasn't alive for the last depression so I have no personal experience of one.  I don't think anyone has experience of what we are witnessing right now.  In some ways I don't really mind what drives it so long as I stay in a long precious metals rally.  The only way I can do this is by using technical analysis.

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As with a lot of markets we are seeing consolidation in Gold and Silver.  I am wondering whether the Gold consolidation could turn out to be a Flag (a natural pause in a strong rally).  I am currently anticipating a retrace further down prior to a strong rally phase for both Gold and Silver.  This could happen if one of 2 scenarios as follows:

  1. A shallow retrace to about the Fib 38% area to complete a Flag formation
  2. A deeper retrace to Fib 50 or 62% in 1-2 style retrace.

At present I would be looking for Gold and Silver to begin to rally prior to Indices top out and fall but as usual will let price action be my guide and patiently await developments.  I will be looking to add to my Long positions at a suitable turning point on price action and with other supporting indicators showing a high potential for that rally resumption.

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interesting view. I would think that we're going to be looking at the lower end of your charts closer to that 1200 level. It seems to be a major area of support and one of those big psychological barriers.

Interestingly your levels seems to be supported by Chris. https://www.ig.com/uk/commodities-news/technical-analysis--key-levels-for-gold-and-crude-181022 and they say that if a lot of people are expecting it to happen at a certain level it will - almost a self-fulfilling prophecy almost.  

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Yeah could be @cryptotrader but that is only a reflection of market sentiment in my opinion.  If the majority are inclined one way then the market will go that way.  There are so many analytical and trading techniques, as demonstrated by this forum, so as to render any notion that technical trading works because everyone believes in it in my view.  There are many people who are hugely skeptical of analytical techniques, just as there are also those who do not believe that news really moves markets.  Personally I prefer to let the price action do the talking but only within the context of long term analytical set ups.  Let's see what happens next but for now I am 50/50 on either scenario.  One thing I do believe is that when it breaks out this Gold/Silver rally will be big and may be an easier trade than shorting the indices, I have certainly found it to be so far.

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Yeah could be @cryptotrader but that is only a reflection of market sentiment in my opinion.  If the majority are inclined one way then the market will go that way.  There are so many analytical and trading techniques, as demonstrated by this forum, so as to render any notion that technical trading works because everyone believes in it in my view.  There are many people who are hugely skeptical of analytical techniques, just as there are also those who do not believe that news really moves markets.  Personally I prefer to let the price action do the talking but only within the context of long term analytical set ups.  Let's see what happens next but for now I am 50/50 on either scenario.  One thing I do believe is that when it breaks out this Gold/Silver rally will be big and may be an easier trade than shorting the indices, I have certainly found it to be so far.

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Looks like it was a Flag after all.  This is very Bullish in my view.  The break of the Flag was a good trading point Long and if there is a sustained resistance breakthrough this rally could run up to the 1350-1400 area before we see any retrace of significance, which will be a prelude to a much, much larger rally..!

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especially if the indices break! this has been a very very short squeeze last week but it seems to have finalised and petered out. We could be seeing some serious movement once again if earnings are crappy in the US over this week and next.

I certainly would be keeping gold in my sights.

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Agreed @cryptotrader although I suspect Gold/Silver will rally now whatever happens on the stock indices.  There is never a 100% relationship all of the time and Gold can go up at the same time that stocks go up.  I would like to see USD drop in retrace for a while though to seal my confidence in Gold/Silver to rally for a while.

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have you ever bought actual gold? as in going into a store and purchasing that way? I have no idea about it and never looked into it, but there must be an argument for it? I wonder if the commissions are huge?

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Never did it but did look into it once.  The dealer I know about is called Sharps Pixley, UK based respected company.  They actually have a shop on St James St in London I think where you can buy small level items but really they deal in physical bullion as dealer and storage service.  I think a chunk of their storage is in Switzerland, if memory serves.  Check out their website. 

https://www.sharpspixley.com/

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Gold rally phase looks strong, although it has been in consolidation during the recent stocks bear moves, not dissimilar to USD.  Makes me think Gold is not yet acting as a safe haven store of value yet.  I suspect the next move will come thanks to USD price action rather than stocks but regardless of why I still see a strong Bullish set up, albeit short term there may be more consolidation.  Having had a breakout and retest of a potential small scale flag formation (these are relatively weak signals being on short term time horizons) I am looking for a stronger break through of overhead resistance levels to trigger any additions to my Long positions.  Caution is required during any consolidation period as whiplash price action can cause death by 1000 cuts.  However there is good potential here if we can tap it.  The Daily chart medium term prognosis is speculative at this point and therefore only a road map guide but a strong breakout would get this market on the road and then constant revaluation will help manage any trades in play.  Silver set up seems even more Bullish to me.

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It's a very important point @TrendFollower but very hard to answer because stop setting is all about attitude to the risk/reward ratio.  If the rewards are massive and you can afford the loss in your account then a larger risk might be acceptable BUT only if you have a high probability of success.  How you assess both the probability of success and the stop position is determined by your analysis and trading methodology and so mine is very likely not to be the same as yours.  It would be easier for me to comment (using my methodology) if I knew what you were thinking of doing, both in terms of a trade execution point and stop levels off that.

As for me, I took my long term trades before the market broke out of my Daily tram-line (blue line in the below chart), based on pre-identified turning points.  Such trades are somewhat speculative and can easily breakdown so I always keep my stops close, just under the turning zone and, as you say, exposing me to no more that a set %.  Once the market moved in my favour and I was confident that we would not see a retest of my turning zones (in this case when the blue line triangle was swiftly broken through on 11 Oct) I moved all my stops to break even.  With zero risk (excepting some crazy flash crash) and significant potential upside.  I am sitting on that and waiting for the next stage to begin a pyramiding strategy IF Gold does indeed rally long term.  I have done something similar on Silver.

So let's look at the charts now, I am confident that Gold will rally hard but not confident on when yet.  The first step is done, that break of the Daily Triangle, but we could easily see a retest of the breakout area (1,200 zone) as you have been saying TrendFollower.  This scenario I have road mapped with red arrows (not timeline accurate of course) and in truth we could see a turn at any support zone along that red arrow down.  The alternative is that the short term Flag formation holds and we see a strong rally away near term (blue arrows).  The upper Flag line has had 2 tests already and both were rejected (albeit the first was a so-called "hard" retest, where price actually penetrates but recovers back above the line) but we look to be setting up for a third and who knows whether this will hold again of break through???  Gold has not been rallying hard as stocks dropped, USD has been rallying, which is perhaps one reason Gold is sluggish at present, but what happens next?  What if stocks rally and USD falls? What if the reverse happens?

My approach will be to wait and see which way the short term support goes and follow 1 of my 2 road mapped scenarios accordingly.  I will only add to my positions when I see price action that fits my road maps and typically keep close stops at entry to guard against invalidity of set up.  Any trade I might take around the short term flag will have very close stops because the likelihood of this being invalid is higher.  I would be more confident to let a retest of the 1200 level have a wider stop.  A trade on the breakout of over head resistance (if it is a fast move) would have an average stop distance but if volatile (i.e. during something like US NFP) it might need a wider stop initially.  I would not move to break even on this breakout until I was sure any retests of the support/resistance area were done.

In general terms, many people talk about placing stops below the previous low (or above the previous high) from the point you enter a trade.  Others talk about a set percentage rule.  I have always preferred to go closer as I feel if the market does not turn at my identified turning point my set up is invalid and I must look at the alternative scenarios (or alternative turning points in the same scenario).  This sometime causes me t get stopped out a few times as I attempt to enter but my strategy is to lose small and win big (fewer bigger better). So I don't mind that so long as it does not become a death by 1000 cuts situation.  Again it is very hard to be precise about this because every set up is different.

What are your thoughts?

XAUUSD-4-hours_261018.thumb.png.5ed1cab6c46ecc76e0e14340418f90e2.png

 

 

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Sounds right to me @TrendFollower, I don’t use MA much myself.  For me, with the set up I have evolving, a break through resistance ought to be strong and therefore retrace no more than to retest that resistance level.  I am looking more at the 1245 area.  If you wanted to give it more room against a hard retest then I would be looking at the 1225 level of the series of lows and turns.  As a general rule I prefer to cut losses early and seek a re-entry rather than ride out larger losses.  I sleep better at night that way... ?

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