Target reached on the gold price

The “Measured Rule” target of the “Symmetrical Triangle” has been reached for $7,000 per contract (See daily chart right hand side below).

Measured rule takes the distance from the first reaction in the triangle and adds it onto the breakdown point for an initial profit taking target. This seems to be about the distance it takes for traders on the wrong side of the “Open Interest” to unwind their large losing positions that were built up within the pricing pattern AND for the winning short traders to continue piling it on in going for the “jugular” before the profits get taken and the losers get cleaned out. The market at times seems to return back into a balance of supply and demand being on more equal terms afterward.

There were some comments after a recent article of mine on gold futures, and they were along the lines that charts don’t matter with a manipulated market.  While it is true I have no use for “technical indicators”, “oscillators”, “waves”, “pivots”, “fibonacci”, etc., I replied that I believe auction market analysis is the most objective way to view market behavior.

Gold recently went from a bearish downward sloping “Channel”, to a neutral or consolidating “Symmetrical Triangle”.  I went into detail about the symmetrical triangle and the change in trend “prior” to the breakdown here.

One side of a contract gets steamrolled out of an explosive pattern like this triangle often enough to warrant attention.  Does it always prevent losses and make profits, NO!  There is no such system that I am aware of that can do that.  However if a trader can recognize the combustion chamber of tension in the open interest early enough it could be helpful in developing a trade plan that might capitalize on a higher probability of a non-random price excursion.  The “random market theory” in my opinion is indeed a myth.

“Igniter Moves” are a very strong signal and you can see on the daily chart below the breakdown came on a long bodied candle accompanied by a significant increase in volume, which raises the odds in my experience of the target being reached.  When I catch the igniter move I want to find a way to add to the winning trade or sit back and observe.  This is the complete opposite of averaging down to losing positions.  On a side note, tightening or trailing a stop loss that gets executed on any minor reaction would have been brutal prior to the target being reached.  It is very tough to make up for mistakes and survive in this business.

Recognizing a pattern like this one doesn’t mean you have to put on a position.  It can be used to exit one (risk management/stop loss), but averaging down adding to a losing long position with leverage on a pattern such as this one increases the probabilities of blowing up a trading account.

I am trying to buy gold for the intermediate to long term, but it hasn’t been possible. The only “buy” using my methodology would have been on a breakout to the upside from the triangle. However I don’t have any issues waiting on the sidelines for the next phase of development to take place either.  Stay tuned as I hope to be laying out the case for it when it happens.  Let’s see if $1,550 becomes a stopping price or a rest for another leg down.

In closing, I want to put the probabilities of a trade on my side by combining pricing patterns and the study of volume, along with the auction profile, open interest, and the structure of the Commitments of Traders Report.

(With the profile)

The pattern on the 30 minute chart coincided with the larger degree timeframe which magnifies the reward to risk ratio when a winning position gets trailed to the target on the daily.  Trades like this one can raise the overall “positive expectancy mean” of a trading system.



Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing

Comments are closed.