Sunday, 11 December 2011

Gold..... a study in price weakness continued + the 'topping out' pattern

I am still moving towards reaching my goal of becoming a consistantly profitable trader but do believe that i have found a handful of overlooked observations that can be proved/discovered by anyone ( with enough time) which I have taken/ adapted and incorporated along with two or three other technical trading systems to produce my personal set of trading setup rules which work well but there is always room for improvment and often I am my own worst enemy pshycologically. These of course are not really based on my own theories rather observations on the theories of Alan Andrews and Babson and others who are mostly repsonsible for the large body of material i have mearly experimented with and tried to suit my style of trading. The truth is i am as much a contratrend trader (which is a dirty word for many and against many of the rules that you are taught) and as much as i trade continuations and continuation breakouts however I still tend to have more success with the contratrend approach. I try to anticipate markets highs and lows and changes in trend- not major ones as you never know at the time what is a major turning point and they are usually just another swing high or low. I have found that this best suits my character and once confirmed there is no need to pick th bottom or top but just catch the first retracement of the new trend.
This weekend i returned again (these posts. link2) to have yet another look at the gold market. A market that I have not traded until recently since early 2011 when it was at 1300$ and I posted this post on thursday 3rd Feb 2011.
The trouble with gold is we have been in a almost continious bull cycle for 10 year plus and as such i lack pivots to derive my forks and ultimately the reaction line from which i trade. My historical data for spot Gold goes back only to 1997/98 but Comex gold futures data goes back to the early 1970's and has all the major pivots that we need to produce a decent map of the market structure.
I use mutliple pitchforks and their WL/RL's selected using a mathermatical pivot formula to give a numerical value and end up with drawing a historical multiple pitchfork template which usually have predominantly horizontal reaction and median lines when viewed in lower time frames below the daily. These horizontal line are obviously not horizontal when drawn but as the time frame decreases their angle becomes slight. The angle of the line is critical and the probability of a horizontal reaction line ( from a daily/monthly or weekly fork) stopping/reversing price in the 60 or 240 min TF is quantifiably higher than reaction/median lines at 45 degrees for example.
Let me show you an example in the chart below where we have two forks ABC and ABD and also their reaction lines drawn at 50% intervals. These forks span over 20 years with their pivots and ( in my opinion) express only the relationship between these four pivots. There are other forks that should be drawn to reveal market structure but i am going to show you the effect of just these 4 pivots using 2 forks and their respective reaction lines.

Now below is the same chart in the 240 min time frame. It shows one the of the upper median line parallels from the blue fork ABD plus the two most recent reaction lines form both ABD and ABC. Not only does the UMLP of this blue fork describe perfectly the double tops and turning point of gold and the two reaction lines also show remarkable correlation with recent price in this 4hr chart plus this looks like a 'topping pattern'.

Now, once my chart is completed ( 2-5 hours manually for each instrument) and all forks
( 'historic' forks ( with pivots values over 65) and 'current' forks (values over 75) and 'controlling' forks values over 85) are added plus reaction and warning lines you end up with what i think is about as complete a picture of price structure as you can get. It may look very crowded in the daily time frame but if you drop down to the 5/15/30/60/240 min TF then you have a valuable tool.
Trend and direction are another matter altogether and that is why you have seen I combine these charts with usually at least two multiple indicator based systems across 3 charting/trading platforms.
Here is Gold today Monday 12 December during the morning London session just before the AM fix ( always a time to be alert) and my short 'bias' over the last few weeks was correct but i missed the move down overnight in Asia and now am looking to sell into strength ( a failed rally) if we see any. The outlook for Gold is bleak support at 1650$ then 1635, 1612 and 1600 are some levels just for starters. However a small bounce first perhaps today/tomorrow but watch the US$ and equity market performance. So how far will this market ultimately retrace? I would
be very surprised if we went back to the ABD centre line (Esignal monthly chart) at around

1500$ but we live in uncertain times and i would raise the probability of this option if the S&P/Dow/Dax/Ftse etc. should go lower than the late November lows.

No comments:

Post a Comment