Home—Online trading—Spread betting explained—Spread betting blog—What next for the rallying gold price?
Jan 11, 2012, 03:08
Posted byJohn C Burford
Comments (9)
The last time I wrote about gold on 6 January, I had taken profits from a short trade and was looking for a decent rally from the oversold condition.
I wrote: "I have drawn in a new set of up-sloping tramlines containing the rally. The touch-points are pretty good. But now at the $1,620 area, we are approaching the Fibonacci 38% retrace of the move down from the $1,800 high, the down-sloping satellite tramline, and the upper up-sloping tramline.
"This area is marked by my 'Resistance' label in the blue box. This is formidable resistance – and can be used to set another short trade."
Since then, the market has rallied to my target area around $1,640 – and now I can re-draw my short-term tramlines.
Trader tip: Keep looking for new tramline placements as trading develops, because the old ones may stop working.
I like to look first on the daily charts, then the hourly, and then the 15-minute charts. I do this several times a day in active and volatile markets.
OK, this morning, the market is trading just above the $1,640 area. Is this a good place to set a short trade?
Here is the chart showing the decline off the 4 December high and the rally off the late December low:
(Click on the chart for a larger version)
I have drawn in the Fibonacci levels, and right away, I can see the market is approaching the 50% level. This is a very common retracement and we could see a top here.
The higher level at 62% also is a common retracement area, which lies at the $1,670 level – around $30 above current. I need to keep this one in mind.
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Now let's take a closer look – here is the hourly chart from mid-December:
I have now drawn in a new pair of tramlines, which I like very much. Why? Just admire the beautiful touch-points marked by the blue arrows – these points lie distant from current trading and so act as very strong anchors for the tramlines.
In other words, it would take a huge effort for the market to push up through the upper tramline. Of course, this is not impossible – and the implication is if that occurs, I would likely be looking at the 61.8% retrace as my target.
Let's now take an even closer look at recent trading:
As I write, the market is right up against the upper tramline in the $1,646 area (as indicated by the green arrow in the top chart). But just glance at the momentum (the green arrow on the bottom chart).
On this latest push, the momentum is lagging, and if the market decides to turn back here, that would set up a large negative momentum divergence.
The top would likely be confirmed if the market can move below the purple and yellow bars.
Of course, the market could rally further and remove this potential, but with the evidence just presented, the odds seem to favour a turn here.
But one thing is bothering me – I cannot see a convincing A-B-C pattern to this rally. Recall, I prefer to see this pattern on counter-trend rallies and then to short on the higher C wave.
So one real possibility is that the market could turn down from here in an A wave, then dip to form a B wave, and then rally back above the A wave to make the final C wave (topping at the Fibonacci 61.8% retrace around $1,670, perhaps?).
This possibility is enhanced by the surge in bearish sentiment I have noticed towards gold recently.
This factor could well provide the ammunition to keep the rally alive a little longer.
A couple of notes on queries sent in by readers – thank you for all your emails:
1. The pip size for gold varies from spread-betting providers. I am using a pip size of $0.10 per oz, so that on a £1 per pip bet, a $10 per oz gold price move equates to £100 change in trading equity. Other providers use $0.01 as their pip, so a bet of £0.10 per pip is required to produce a £100 equity change on a gold price move of $10 per oz.
2. On a point regarding use of my 3% rule (the video will be out soon!), a reader asked about using a bigger bet size, while reducing the stop. As an example, if the 3% rule dictates that your stop is 100 pips betting £1 per pip, can you bet £2 and use a 50 pip stop? The answer is – definitely not. A stop position is dictated by a sensible appraisal of the chart and the entry point. Using tighter stops inevitably leads to more frequent losses, and that is against my religion.
• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:
• The essentials of tramline trading • Advanced tramline trading • An introduction to Elliott wave theory • Advanced trading with Elliott waves • Trading with Fibonacci levels • Trading with 'momentum' • Putting it all together
• Don't miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here .
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Leave a comment
(11 January 2012, 04:11PM) Complain about this comment
John, I am very much enjoying your emails and videos and I am beginning to get a feel of charting. I followed your gold email of the 6th January and drew the lines which you suggested on my own charts. I then placed an order to sell at 1611 with a trailing stop loss of 35 pips. The price fell to 1602 and my stop fell to 1637. The market then rallied to above this price and I was stopped out with a loss of 26 pips. Your email of 11 January does not suggest that you incurred a loss so where did I go wrong?best regards
(11 January 2012, 04:52PM) Complain about this comment
John,Great blog. Very informative. However of all your techniques the one I am least convinced by is your Elliot wave analysis. A very well respected Elliot wave chartist I follow is convinced that the Elliot waves on gold show we are in a Bull Market at present. In contrast you see the Elliot waves showing a bear Market. It seems that this technique is very much open to interpretation. For what it's worth the other Elliot wave chartist called the 1923 top to within 5 dollars. Your take?
(11 January 2012, 05:10PM) Complain about this comment
A great blog - best tech analysis/charting I have seen - I would like to team up with other followers of John to form a co-operative where we each follow different charts and share our views - perhaps something like this already exists - if someone wants to set one up with me or can point me in the right direction of an existing charting group I'd be most grateful. I find that I can't really follow too many charts at once so sharing info on this basis would be great.
(11 January 2012, 09:15PM) Complain about this comment
I am struggling with your analysis and found myself (heretically) wondering was this anything more than it may go up it may go down. I have no doubt you know a huge load more about technical analaysis than I do - all your anlaysis makes sense, but top and bottom - it may go up it may go down - sorry I knew that already. Sorry this may be impolite as a post, but if you watched and tried to trade the Dow and FTSE today you'll have as big a headache as I have and the losses to go with the six trades I placed I could have given you three excellent technical indicators for each trade - two trades wereminimally right and four were maximum stop outs - but hey it can go up, it can go down, what I need and am not getting (from anywhere) is a sense of probability the liklehood it will go up is 0.7 and down 0.3 - but come on - no one goes there do they???? It goes up, it goes down.
(12 January 2012, 08:56AM) Complain about this comment
Dear John, In your email of the 11th Jan you showed two possible lows, yellow & purple neither of which was on a tram line or Fibonacci line. What were their positions based on?Best wishesCresswell Alcock
(12 January 2012, 09:59AM) Complain about this comment
Hi John Firstly may l thank you for your emails and videos they have been very helpful to me and have simplified my trading and my ability to look at the charts with less clutter!You said in an earlier email "The pip size for gold varies from spread-betting providers. I am using a pip size of $0.1 per oz, so that on a £1 per pip bet, a $10 per oz gold price move equates to £100 change in trading equity. Other providers use $1 as their pip, so a bet of £10 per pip is required to produce a £100 equity change on a gold price move of $10 per oz."May l ask which spread bet provider you are using as you indicate quite a difference in the equity position with regard pip size for instance on the gold trades that you are doing?Thank you once again for your advice it is very good of you.Kind regardsKevin
(12 January 2012, 11:05AM) Complain about this comment
Grosvenor, at your request and for any others interested. I've created a group for discussion of John's and anyone else's systems. It is a closed discussion group but anyone may apply to join.send an email to tramliners-subscribe@yahoogroups.comor visit.http://finance.groups.yahoo.com/group/tramliners/
(12 January 2012, 01:41PM) Complain about this comment
John, firstly many thanks for your continued issue of such interesting and relevant observations about the markets. Your approach to trading and the strategies adopted are first class and I look forward to receiving them in my inbox. Secondly, a quick question to you if I may re. your charting package as seen in your videos. Would you be able to let us know which tool you use (i.e. is it from an SB provider), as I particularly like the feature you have at the bottom portion of your chart where you can expand/reduce the date range required for viewing. I have not seen that anywhere else. Any information gladly received. Many thanks again and please do continue to deliver such quality material.
(23 January 2012, 03:25PM) Complain about this comment
Up it goes - this is a tricky one. Having looked closer - i see a rise to at least $1690/1700However - I struggle with Elliot waves and frequently ask myself 'why that wave, why not the one to the left or right or ...not at all.Is there a secret? It may helpMany thanks
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