How to “See” the True Message of the Markets (Part 5)

How to “See” the True Message of the Markets (Part 5)

The probable path of price is becoming clearer to me, but perhaps one more chart will bring it into clearer focus for both the trader and for you:

chart

The finishing touches on this analysis are simple. I mentioned before that when I see that the measured length of the swing from pivots A to B equals the length of the swing from pivots C to D, I find the same tools will give me useful projections of the swings forward in time. On this chart, I measured the upside distance price travelled from swing B to swing C, and then projected that same distance upward from the low made at swing D. If I am correct, the swing currently unfolding to the upside from pivot D will be the same length as the swing higher from pivot B to pivot C. Note that I marked where this next swing higher should run out of upside directional energy, at about $880 per ounce.

I don’t see any sign that the current uptrend is over or nearing completion, so if price pulled back a bit to test the up-sloping lower sliding parallel, and that line held, I would be interested in entering a long gold futures position. Remember that this is the pre-trade analysis, so it is too soon to talk about specific entry prices and initial stop loss orders, but as always, I would only enter the orders if the size of the initial stop loss was acceptable and the risk reward ratio was within my normal parameters.

You can see I added a wide green line that unfolds in a wave pattern to show what I consider to be the probable path of price. Once I add the probable path of price onto the chart, it becomes obvious that if I am correct about the projected price target at $880, price will also be running into resistance at the down sloping Schiff Upper Median Line Parallel—and that Upper Parallel marks where price should run out of energy—a great place to take profits.

I showed you charts and analysis that support both a down side move and an up side move. Remember that this analysis is meant as an exercise to help traders objectively identify market structure and then help them determine the probable path of price.

Let’s see what the gold futures did over the next several weeks:

chart

Price came down and tested the lower sliding parallel, and the key support held at that level. Upon successfully testing the sliding parallel, price turned back higher and made a very quick, nearly vertical run up of over $140 an ounce, right to the $880 per ounce area where I projected and marked the equal measured move. Then, after consolidating a bit, price traveled higher and tested the down-sloping Schiff upper Median Line parallel, where it ran out of upside directional energy.

Do not let your opinions get in the way of your trading! Do your best to do objective analysis, and more importantly, trade the market’s actions, not your views or opinions. If you find yourself getting short three times in a row while the market continues to make new highs all morning, you are trading your opinions, not trading the market’s action. The market is always right!

I wish you all good trading.

How to “See” the True Message of the Markets (Part 4)

How to “See” the True Message of the Markets (Part 4)

My first comment to the trader doing his pre-trade analysis, once I presented this chart, was that price may have completed its downside run for now, or in effect, completed its journey. I then noted that in my simple swing analysis, price was still in an uptrend. It may turn lower, but on my first two charts, I see no clues that price will turn lower.

Let’s see more of the detailed analysis I presented to him:

Click to enlarge image


Price has fallen in a near-vertical fashion twice on this chart, and there is a tool that was modified to be particularly useful after near vertical falls: the modified Schiff Median Line. If you study the chart above, you’ll see that it is a derived version of the traditional Median Line, formed by moving the original starting point of the Median Line handle horizontally and vertically halfway towards the pivots that form the Median Line width. The easiest way I have found to illustrate the shift of the first pivot is the construction of a box that begins at the pivot A and continues to the pivot B on the diagonal, and by shifting the origin of the handle to the center of this box, a modified Schiff Median Line is formed.

I take the trader’s original Median Line and make it a Schiff Median Line. I chose this down-sloping Schiff Median Line over a traditional Median Line because it adjusts well to the near vertical falls this market has experienced and will do a better job projecting the probable path of price. By modifying the trader’s own Median Line, I also keep him in tune with my analysis, since I am building on his own analysis.

Now I want to consider both the downside and upside possibilities. I add in a blue, up-sloping Median Line and its parallels. As soon as I add this Median Line set, I note that price has violated the blue lower Median Line early on, but has now moved well above the lower parallel. Looking closer, I see that when price violated the blue, up-sloping lower Median Line parallel, it stopped at the down-sloping lower Median Line parallel, where price should run out of downside directional energy. I add in a line parallel to the up-sloping Median Line that goes through the low for this move at the down-sloping lower parallel. All further downside movement should find that this new up-sloping, sliding parallel line acts as support.

More in Part 5…