Last month I wrote about a great triple top setup looming on Gold. Well, the good news is that the gold bears delivered with prices falling more than $120/ounce from the 5 October high of $1,798/ounce. More tricky, however, is what to do about the solid bounce seen over recent days. Chart 1 is an update from last month, showing the progress of the triple top setup:
Chart 1 – Gold Daily Bar Chart – Triple Top at 200% Update
click chart to enlarge
We were discussing this setup at the recent Trading Tactics Workshop in Melbourne when one of our traders asked how you would trade such a setup. The answer is surprisingly simple. In this article we’ll zoom in to take a closer look at some of the short trading opportunities that have presented.
Chart 2 is the daily bar chart showing the market action since the 5 October top and the subsequent bounce out of the 5 November low:
Chart 2 – Gold Daily Bar Chart – Short Trading Entries
click chart to enlarge
The first trade entry came in the form a first lower swing top. Unfortunately, there were a few days between the time of writing that article and it arriving in your inbox. The unfortunate part is that the first lower swing top trade was confirmed the day before you received the article.
Examination of the swing chart reveals this first trade had:
- a preceding lower swing bottom
- contracting up-swings
- expanding down-swings
This was a great little trade with several stop movement strategy options, the easiest of which is to continue to move your stop loss down to ‘one tick above’ each subsequent lower swing top.
It doesn’t get any more straightforward than this! This next trade was a ‘plain vanilla’ ABC short trade. This second trade had:
- an expanding A to B range
- essentially a 50% retracement
- a point C below the last swing bottom (support becomes resistance)
- lower volume B to C, compared to A to B
Another great little trade with either milestones based on our A to B range or again, lower swing tops, as a couple of straightforward stop loss movement strategies available.
This outside continuation day entry is slightly more complicated and required a degree of intraday information.
The bounce that followed a couple of days later did not take out the high of our outside day entry but certainly kept you on your toes before the big fall on 2 November. Depending on how you moved your stops for this trade, you may or may not have been in there for that final fall.
Trading is a funny business at times. If you were not short on the night of 2 November, you might have been disappointed. But just two trading days later, when the market was back up where it started, your disappointment would have disappeared!
The Recent Bounce
Since the 5 November low ($1672.5/ounce), we have seen a solid bounce. This 5 November low is basically 30 degrees from the 5 October high. The initial bounce saw four consecutive up days in a row, giving us what we call an ‘Overbalance in Time and Price’.
The million dollar question is whether this current bounce is a ‘dead cat bounce’ or a genuine change in trend signal. There is a strong possibility that there is a significant amount of ‘short-covering’ in this bounce. Short-covering occurs when bears buy back their positions in the face of evaporating profits, which leads to a very sharp bounce.
Some clues can be found in the Ranges Resistance card for the range from 5 October ($1,798.1) to the 5 November low ($1,672.5). It could also be well worth keeping your eye on upcoming Time by Degree dates. This is an extremely interesting bounce, demanding a high level of concentration. The next week or two are going to be fascinating. If you are joining us for the upcoming Interactive Trading Workshop Online (or any of our Online Coaching programs), be sure to ask the instructor to keep you up-to-date with the analysis of Gold.
Until next time...
Professional Derivatives Trader