Wednesday, April 22, 2009

Do You Trade Gold With The Bullish Percent Chart & Cycles?

So many people want to know how to trade gold and to be honest, if your patient enough to wait for a buy signal and low risk setup then trading gold can really pay off with only a few trades. This report shows a couple charts which I follow to help time my trades. My trading model allows us to trade any sector but I prefer to trade gold and oil because of the accuracy which they have provided in the past.

Trading with the Bullish Percent Index (BP)
The BP chart is great for finding overall trends in a sector. I focus on the trend and try to find patterns/cycles to help time pivot points for trading gold and gold stocks. Each sector has its own cycle length so do not try applying the same cycles to different sectors.

The chart below clearly shows the gold miners BP chart which has been in a strong up trend since December. The current cycle has just turned up for the gold index indicating we could see higher prices this week.

The Gold Bugs Index (Gold Stocks)
Trading gold stocks is a very exciting and profitable niche to trade. I have traded many other sectors and the top two sectors I specialize in are Gold and Oil (energy).

Trading using technical analysis is my strong point. I combine multiple time frames, trend lines, momentum, commitment of traders (COT) and several other inter-market relationship trading vehicles. After analyzing this information very accurate trading signals can be generated.

Trading gold stocks using a proven trading model and risk management helps to keep trading signals black and white taking the guess work out of trading. The chart below shows that gold stocks are near a support level and when you combine this with the BP chart above which just turned positive I know I can start looking for some potential long positions in gold of gold stocks if we do happen to get a strong reversal to the upside.

How To Trade Gold (GLD ETF)
Gold is currently trading at a pivot point and will most likely make a sharp move higher or lower from here. This has many traders on edge right now. I prefer to stay in cash during times like this and jump on the wagon once a direction has been confirmed and I have a low risk setup.

What makes this a pivot point?

  1. Currently at the December highs which could act as support
  2. Gold has formed a Head & Shoulders pattern and broken the neck line
  3. The current pull back looks like a simple ABC retrace before moving higher
  4. Gold is currently trading at the 200 day moving average which could be support

How To Trade Gold & Gold Stocks – Trading Conclusion:
Learning how to trade gold and gold stocks can be done very easily if you know what to look for and have patients. I don’t trade gold every week but that’s what I really like about my trading model. It’s simple and I don’t have to be glued to the computer every day.

I can quickly look at the charts and know if I could have a potential buy or sell signal with a few days. If I do then I watch the charts, if not I focus on answering my members trading emails and look for other possible trades in other sectors like the Nat Gas and Russell 2000, etc…

As you can see from the charts above gold is at a crucial pivot point and only time will tell before we know where gold is headed. Once we have a direction I will be looking for a low risk setup which is a trade with less than 3% downside risk for putting our money to work.

Gold Market Update

originally published April 19th, 2009
Both gold and silver have suffered technical deterioration over the past week with the result that they are now close to aborting the short to medium-term bullish scenario that was set out in the last update. Meanwhile, large Precious Metals shares are on the point of breaking down from their shallow uptrends in force from December - January after further losses this past week.

As we can see on its 6-month gold has not broken down below key support - yet, and it may even be at a buy spot right now, however, there are two external factors suggesting that the risk of it breaking down has increased significantly. One is that silver has broken below its mid-March hammer low, which is a bearish development, and the other is that the dollar looks like it may be completing a minor base area.

Returning to consideration of the gold chart we can see that last week's fall has not as yet resulted in it breaking below its early April low or below the 200-day moving average or below the support level shown. This confluence of supporting factors means that this is a very important zone, so if gold breaks below it, it could plunge way below the support of the downtrend channel shown. Traders may therefore want to set stops accordingly.

The dollar has held up remarkably well considering the magnitude of the mid-March plunge, which is still thought to have longer-term bearish implications. However, it has refused to break down from the major uptrend in force from last July and has instead formed what looks like a minor base area over the past few weeks above the important trendline so that it now looks ready to break above the line of resistance at 86 on the index to commence another significant upleg. Traders should watch out for such as a breakout as it would be expected to "kick the ball downhill " as regards gold and silver which would be expected to drop sharply as a result. Note, however, that overall the dollar chart looks very bearish with a strongly converging Rising Wedge pattern evident on the chart. This implies that even if the dollar rises back up to, or at least towards, the top line of this converging channel, it is likely to be its last gasp, to be followed by severe decline. If this scenario plays out then we have clear guidelines. Upon the dollar breaking higher and rising towards the upper trendline gold and silver are likely to go into steep decline, and large gold and silver stocks, already buckling beneath the overhanging supply that we examined in yesterday's Marketwatch article on the site, are likely to get hammered. But an approach by the dollar to the upper trendline would be expected to throw up a major buying opportunity across the Precious Metals sector, as the Rising Wedge in the dollar index chart suggests that it will roll over and go into ragged retreat, although it would be wise to wait for the index to fail beneath this trendline just in case it breaks above it.

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