shakeout - tag category postings

It sure was a wild ride in the gold market last Friday. I spoke about ‘fireworks’ in the Gold market over at the sister site to this one… and fireworks it was, but to the downside. Considering that the gold market since the early part of this year has been quite boring and lackluster, the jump in volatility is somewhat refreshing and at the very least provides us with a hint that some real directional change is about to take place. I gotta tell you, I hate nothing more than a slow, sloppy, sideways non-moving marketplace!

But the question that beckons us now is whether or not this move in gold is a solid down signal and indication of trend persistence, or simply a fakeout and shakeout.

The shakeout theory sure is an interesting one. Over the course of the last 2 weeks or so I have been studying the forex market and the various currency pairs so that I may become more familar with it to the point where I can write intelligible technical articles on it. In particular I noticed an extraordinary downside shakeout in the USD / CAD pair right before it exploded upward in an extraordinary breakout. That shakeout probably removed about 90% of long positions right before the big move up.

This is a very frustrating situation for those who studied this trade and made significant long position commitments to it.

Why?

Because the longs were correct on the trade, but still got punished for it and likely stopped out as well. The VERY SHARP downside shakeout just before the huge upwards breakout most likely gives even experienced traders ‘deer in headlights syndrome’. It can be very discouraging if you are not prepared for it.

So I thought about how such a scenario could be successfully tackled and traded properly?

The short answer is simply one word. Patience.

If your technical studies are indicating a very good possibility of a strong breakout from a trading range or consolidation pattern then it would be good strategy to simply wait to see if such a shakeout occurs before the initial break of resistance.

Once you see what appears to be a shakeout (for example the downside move in the gold market we saw last Friday), then the prudent thing to do is to WAIT and watch for super strong demand to show up in the market quickly and swiftly. Often what this will do is either on the daily or weekly price bar create a mid range closing bar or even high range closing bar on the weekly or daily. It all depends on what time frame you are looking at.

So what you want to see is swift and strong demand coming into the market after such a swift shakeout. This demand must show up in order to give you the signal it is time to go long!

So the Gold market on Friday saw a sharp volatile down move. During the next week or two it will be necessary to see a swift and rapid price recovery with almost vertical persistence for me to believe that an ensuing ’super breakout’ is coming…

For now though, we do still see that the price is contained within a wide trading range.

Also notable (and I probably should have mentioned this first) is that the XAU mining stock index closed positive for the day on Friday! So the mining stocks did not believe the decline.

Not to confuse you any more than I already have, but the ongoing fact remains that we still DO have the monthly bearish MACD signal on the Gold Price! And we also have a bullish rallying Dollar!

Gold’s breaking either one of those horizontal green lines in the chart at the top of this page will be a BIG CLUE about the direction of gold going into the end of this year!

Peace.