Home—Online trading—Spread betting explained—Spread betting blog—The only way is down for gold
Jul 11, 2012, 01:52
Posted byJohn C Burford
Comments (11)
In Friday’s article, I detailed how the five-wave pattern down from the 19 June high to the 28 June low, followed by the three-wave A-B-C rally to the 3 July high confirmed that the most likely path for gold was down – and that it would probably challenge the critical $1,530 support area fairly soon.
Since then, the market is making solid headway to this target, so let’s recap what the picture looked like on Friday.
From the $1,623 wave C high, I could draw in a solid tramline trio on the two-hour chart below.
A break of the central tramline let me in with a short entry in the $1,615 region with my protective stop just above the $1,623 high.
(Click on the chart for a larger version)
Trader tip: This is a great example of how I am able to locate low-risk entries – in this case, a stop of less than $10 (100 pips). For the notoriously ‘spiky’ nature of this market, this is a very close stop! To illustrate what this means, suppose I had allocated a maximum risk of 3% of my account of, let’s say £20,000, or £600. Risking 100 pips means that I could bet £600/100 = £6 per pip and stay within my money management rule.
This is a very simple method of calculating the maximum allowed size of any bet on any trade.
By doing this calculation on every trade, you need have no worries about keeping to your discipline – it is done automatically for you – provided you remember to actually enter your protective stop.
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OK, with my bearish analysis being supported in the short-term, has the market confirmed my stance? If we are truly resuming the bear market, the next move down should bear the hallmarks of another five-wave pattern.
Do we have one?
Here is the hourly chart as of this morning:
Yes, indeed – a five-wave move down! Nice.
So this gives me added confidence in my roadmap.
Note also that the corrective 4 wave has a splendid A-B-C character – this is even more confirmation of my Elliott wave labels.
Now with the market having moved down by around $50, I moved my protective stop down to break-even, following my break-even rule.
I now have a free ride on this trade.
Naturally, after a five-wave pattern comes a three-wave correction. And that is what I will be looking for in the next few hours.
Of course, nothing is written in stone in forecasting, so where would the market have to go in order for me to cancel out this picture?
If the market can move much above the wave 4 high at the $1,600 area, I would need to go back to the drawing board. But with the Elliott waves lining up as well as they have so far, I put this event at a lower probability, but not zero!
And before I go, here is the latest chart as of 9am:
We have a lovely Fibonacci 50% retrace of wave 5 hit a moment ago – another great place I could have entered a short trade – using a 3% protective stop, of course.
• 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
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Leave a comment
(11 July 2012, 05:03PM) Complain about this comment
I once watched a Chinese woman, a professional poker player, play at Caesar's in a 5-10 high-low split game. She was a consistant winner. Asking her how she did it, she told me she "felt" the cards. To equate this to the gold market where everyone has a different opinion, I would suggest to the writer, John Burford, that he toss his gold chart and get out in the maketplace- rare coins shows, bullion dealers, etc. My prediction, however non-chartable, is that gold will clear $1800 in 2012.How do I know this? After fifty years of studying gold and silver, I "feel" it!
(11 July 2012, 06:01PM) Complain about this comment
Ref your last point about today's gold chart - it has completed 5 waves down and just started an a-b-c correction. You state that as of 9.00am today it had retraced 50% of wave 5 (implying it will revert to falling again very soon). However surely an a-b-c is a retracement of all 5 waves down, not just the 5th? !
(11 July 2012, 08:16PM) Complain about this comment
I agree with Chris-I thought 5 waves down =1 bigger wave,then retrace bigger wave1-could be any fib but not >wave 1 top=wave2 and so on-but hey I'm not very good with EW for prediction.I'm a great fan of John so hopefully he'll say where I'm going wrong.Another(cynical me) point though-if the market makers(profs) see potential elliott waves why would they not flush out obvious stops-but I suppose you have to take some position(much scratching of head)-sorry for length
(11 July 2012, 08:55PM) Complain about this comment
Great short term analysis.I would be interested in your long term Elliot Wave Analysis. Another words have we seen the high for this bull market at 1,920. or are we still in a corrective phase that will ultimately be resolved to the upside with new highs to come?Thank you.
(12 July 2012, 02:08AM) Complain about this comment
A decline to around $1300 would be a nice healthy correction but that is likely to take until sometime in October perhaps November. Very possible with the deflationary forces at work in the US and europe. Would have happened earlier if it was n't for the Bernanke and the Feds bluffing about the possibility of more QE. Unless we get a Lehman event it ain't coming IMHO. The price should not decline as much in sterling as Merv the swerv and cohorts continue to sanction the use of the printing press to trash the pound.
(12 July 2012, 06:57AM) Complain about this comment
Finally MoneyWeek talks some sense on the direction of the price of gold (down) simply cos it's massively overvalued. I wouldn't put much faith in all this technical analysis gobbledegook nonsense, you're better off looking at the tea leaves in your cup to predict the future price.
(12 July 2012, 12:05PM) Complain about this comment
In the short term gold may go down or up but what is of interest to me is the Dow/Gold ratio. This ratio has been asleep for a couple of years now as the Dow and Gold have moved more or less in tandem. Using a 36 month moving average Bollinger Band it shows the ratio below the MA and more importantly the bands narrowing up. Given that narrow bands always lead to a big move ahead it would mean there has to be a disconnect at some point between the Dow and Gold where they will start to move in opposite directions. Maybe we wont have long to wait.
(12 July 2012, 01:59PM) Complain about this comment
Forgot to mention Gold has been going in the opposite direction to the US dollar. The dollar is only half a point away now from 84, the very top of not just one, but two, of John's beloved upward sloping tram-lines. ( If) and when this highly overbought dollar goes into reverse will Gold also? Could be the US dollar holds the key to Golds next direction.
(12 July 2012, 08:08PM) Complain about this comment
@Chris and stevybaby,Your observations regarding the wave count, retrace and suggested re-entry point are entirely valid. The three things cannot all be correct. The wave count looks dubious to me, but if it were correct you would be expecting the retrace to carry to at least the 38% fib retrace of the entire 5 wave movement (usually around the deepest point of the retrace of wave 4). Other than looking back at the chart and seeing that it has already turned at the 50% retrace of '5' and then 'predicting' that that was a good entry point, I cant see any reason why you would enter at that level if you believed the above (incorrect) wave count.
(12 July 2012, 10:16PM) Complain about this comment
Gold and the Dollar do indeed have an inverse relationship. Funny how John never ever mentions this!This fact causes tramlines to not be perfect, and yet John's chart always seem to be perfect. Whenever I look at my charts over the same timeframe as his my tramlines don't have the same touch points as his.If you look at the 4hr charts for gold and GBP/USD at the moment, it looks as if gold is indeed struggling to bounce upwards off resistance. But when you factor in the inverted saucer shape to the GBP/USD chart over the same 1 June to 12 July timeframe, it looks to me that gold is indeed forming a bottom, but that the shape of the bottom isn't perfect and lumpy beacuse of the USD factor. But hey, what do I know?
(30 July 2012, 12:50PM) Complain about this comment
Gold will continue to move sideways (and even down) so long as the Bullion Banks have enough physical metal to lever the market downwards with naked shorts (on the paper side) and selling to the 'unallocated' idiots who don't understand that for every ounce they 'own', between 40 and 100 other people have the same claim.Gold is the only 'commodity' where the stock is ~60 times the amount of annual flow.If/when we have true price discovery the price will explode higher.
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