Home—Online trading—Spread betting explained—Spread betting blog—Your roadmap for gold
Feb 04, 2013, 03:54
Posted byJohn C Burford
Before I cover gold today, I wanted to drop you a quick note on my GBP trade from Friday, as it confirmed my forecast for an increase in bearish sentiment last week.
You’ll remember that I had a long trade working. But the market was hit very hard again, stopping me out at break-even.
I showed the Commitments of Traders (COT) data as of 22 January and my forecast was that the speculators, who were busy accumulating huge short positions, would be increasing them further, since the market had fallen further.
The extension of the decline since that date would virtually guarantee it!
Here are the updated figures as of 29 January:
In particular, the small specs (non-reportables), were piling in with both feet last week.
Remember, this is typically what happens near the end of a run – the specs get even more excited after a run has been in progress for some time.
That means I am on the lookout for another tradable low. I hope to report on this in upcoming posts, provided I see some great tramlines, Fibonacci levels, or Elliott waves of course.
It is the sentiment extremes – a universal feature of the herding instinct – that creates the highs and lows. These extremes are definitely not created by the ‘news’.
That is hard for many novice traders to accept. Most people come to trading with the conventional view that it is the news that is all-important and that if they follow enough of it, they can conquer the markets. Sadly, experience tells us that this is incorrect.
How many times have you seen a ‘bullish’ report come out just as the market nosedives? Of course, after the event, people find all sorts of rationalisations to explain away the inconsistency. The vast majority of ‘opinion’ falls into that category.
I do not want you to fall into that trap. We make our money by anticipating the moves – and the sentiment readings are just one of several tools that I use.
A moment’s thought will convince most that when the vast majority are bullish and have taken long positions, only a small degree of selling could turn the market as piles of sell stops are hit. That is the degree of unbalance that professional traders look to exploit.
The other aspect is this: In a bear run, who are the crazy people doing the buying from the bears? Here, in the GBP/USD market, these crazy people are the commercials (such as banks and trade houses). Many have been around the block a few times and have survived many bull and bear markets. That is why they are considered the smart money. Do you want to bet against them for an extended period?
Yes, you can make money trading with the herd – for a while. But at some point, the boat will tip over. Will you be one of the survivors who got in the lifeboat early and saw the danger before the others?
Claim your FREE report: The six-step game-plan for
spread betting profits
OK, back to gold. Last Wednesday, I showed some short-term trading opportunities in gold based on Fibonacci retracements. Then, the market was staging a rally and I had chickened out of my long trade, and was asking whether I should initiate a new short:
(Click on the chart for a larger version)
The rally had carried to a precise Fibonacci 38% retrace (red arrow), which could be a possible turning point. However, I did hold off because my A-B-C (green bars) did not look terribly solid – my B wave was not definite enough.
And that was a good decision!
The market rallied further – and right to the Fibonacci 76% level (purple arrow). That was a much better entry, of course.
That was another possible Fibonacci trade.
As it happened, I sat on my hands, suspecting a volatile period ahead. This is the current chart:
And what a choppy market! Up until then, I did not have enough on the chart to enable tramlines to be drawn – but now I do, in spades.
I have a superb prior pivot point (PPP - red arrow) on my upper line, and precise touch points in upper and lower lines. That is remarkable, since in gold, I often have to deal with throw-overs when drawing tramlines.
With these tramlines, I now have a roadmap to guide my trading.
This morning, the market was heading down to hit my lower line. I will be ready to trade when that occurs.
• 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
. If you have any queries regarding MoneyWeek Trader, please contact us here.
Published in Spread betting blog
More articles by John C Burford
By John C Burford, May 22, 2013
By John C Burford, May 20, 2013
By John C Burford, May 15, 2013
By John C Burford, May 13, 2013
Leave a comment
(05 February 2013, 02:08PM)
Complain about this comment
I value the money week Trader reports and John Burfurd's reports but with ref.to the latest gold chart sent out on the 4th, yes the tramlines were spot on, however the chart was showing up to about 13-00 hrs price action and by the time the e mail was sent out ( i received mine at 16.00 hrs) the price had hit the lower tramline and reversed by half the projected profit target making it much to late to enter or even consider a trade. I don't doubt that when the chart taken this was a good trade but having received the chart after the event so to speak is just showing what has already happened .
(07 February 2013, 03:28PM)
Complain about this comment
firstly, thank you to John for getting around to covering the Pound. As for Gold, i would love to know John's Elliott Wave analysis since the 1921 top, as i have been unable to locate any 5 wave move down which would vindicate his long-term bearish position.
This will be the name displayed with your comment.
This helps us verify comments are genuine. It will not be displayed anywhere on the site and is stored confidentially.
Please keep your comment within 1,000 characters and relevant to the main topic. We encourage healthy debate, but we don't allow insults or bad language. Anything off topic or unpleasant, we'll remove. Enjoy the conversation! Thank you.
To prevent spam-related comments please enter the characters shown in the 'Captcha' box to the left.
Enter the text from the box above
Remember my details
By leaving a comment you accept our terms and conditions.
The trades on this blog are all 'closed', past trades. These aren't trades for you to copy, they are there to teach you some useful trading tactics for your own spread betting. And always remember: spread betting carries a high risk to your capital as you can lose more than your original stake.
Cut through the trading jargon with MoneyWeek's easy to understand guide to spread betting terms
In his easy-to-understand video tutorials, John C Burford outlines some of the essential concepts you need to know to become a successful spread better
22 May 13
20 May 13
15 May 13
Compare the leading providers' online trading accounts for spread betting, forex trading, share dealing and CFDs, and open an account online. Plus, get MoneyWeek's tips and advice on trading online.
Copyright © MoneyWeek 1999-2013. All rights reserved.
Registered office: 8th Floor, Friars Bridge Court, 41-45 Blackfriars Road, London SE1 8NZ.Registered in England with company no. 04016750 and VAT no. GB 629 7287 94. MoneyWeek and Money Morning are registered trade marks.