Friday, 27 November 2015

Gold - finding a bottom

Another post from my Essex FTA course which is coming to an end now. If you are thinking of taking this course, these blog posts should give you an idea of the work involved.

Sadly, my gold trade did not hit the target of $1105 mentioned in my post of November 16th, but after reaching $1088, promptly reverse and hit my stop. I should have re-set my stop to break-even to avoid a loss, but I didn't.
I have stayed out for the last week, expecting a reversal, but instead saw the metal break long-term support of $1080, reverse at $1064, and now find $1080 as resistance.
A re-examination of the chart shows a clear descending triangle, which is 5th out of 23 in success in Bulkowksi, 2005:711-729[1] as shown below.

Now is maybe not the best time to enter, as the pattern allows for a possible $5 bounce before resuming it's downward trend. But on the other hand, the trend is very strong. I have therefore placed a trade at market
Size           : 5 units
Entry         : $1068
Stop Loss  : $1076 (above the descending line)
Target       : $1032
The target is difficult, as the instrument is at 7-year lows and so we are into uncharted (no pun intended) territory. I have taken the March 2008 top of $1032 as support, the last time it did something major, shall we say a $500 round trip.

Gold 2006-2010. Source
I have added a line for the current price, and the case for this level of support is instantly made, visually.
The price/action in February 2010, and the round point show a possible pause in decline at $1050, and this would be a good point to take, say, half the position off and move the stop loss to break even.
David Atherton

[1] Bulkowksi, T., Encyclopaedia of Chart Patterns, 2005, Wiley

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