Tag Archives: technical indicator

Gold Breached Important Trend Line | 9th July, 2017

On June 27th I published a daily chart of Gold with a simple trend line. In that post I posed the question: “How Gold behaves at this trend line in the next few days will be a strong indicator. Does the bull run continue or is it over?”

Gold Daily 2016
Click chart to enlarge.

The trend line was breached very clearly. The breach was followed by a typical correction up to resistance. Now price is moving down and away from the trend line.

Adding in simple volume gives this signal more depth. If a breach is supported by volume, then more weight may be given to its significance. The breach of July 3rd did come with increased volume, and volume increased further for the next downwards day of July 5th. After a small bounce to test resistance, further downwards movement for the 7th of July shows again strong support from volume.

Sometimes simple really is best.

This analysis is published @ 11:59 p.m. EST.

Learn Elliott Wave – Spot The Mistakes | 6th July, 2017

An Elliott wave version of “where’s Waldo” might be a fun exercise (for the geeks amongst us).

Test your knowledge of Elliott wave rules. Review this chart and find five deliberate mistakes:

Gold Daily 2016
Click chart to enlarge.

The mistakes are all fairly obvious. Two of them break core rules, one is a very common mistake, and another mistake is something that MotiveWave allows (but it should not).

Play in comments below.

Published @ 05:38 p.m. EST.

Drawing Bear Market Trend lines | 27th June, 2017

One of my favourite Technical Analysis texts is the classic “Technical Analysis of Stock Trends” by Magee. In this book Magee describes how to draw trend lines for bull and bear markets.

Gold Daily 2016
Click chart to enlarge.

To draw a trend line in a bear market draw the line from the high to the first major swing high within the bear market. Extend the line outwards. Assume the bear market remains intact while price remains below the line. When upwards movement breaks above the trend line, it is an indication of a potential trend change from bear to bull.

My definition of a breach is a full candlestick above and not touching the trend line.

This technique works on all time frames.

This chart is on a monthly time frame and indicates that Gold may remain in the larger bear market, which began on September 2011.

This analysis is published @ 03:02 a.m. EST on 28th June, 2017.

Drawing Trend Lines? Simple is Best | 27th June, 2017

One of my favourite Technical Analysis texts is the classic “Technical Analysis of Stock Trends” by Magee. In this book Magee describes how to draw trend lines for bull and bear markets.

Gold Daily 2016
Click chart to enlarge.

To draw a trend line in a bull market find the first two major swing lows, then draw a line across them. Extend the line out to the right. Assume the bull market remains intact while price remains above the line. When the line is properly breached, it is an indicator of a potential trend change from bull to bear.

This technique works on all time frames.

Gold began a series of higher highs and higher lows on the daily chart after the low in December 2016. Within this upwards trend, the first two swing lows are taken as the 27th of January and the 10th of March. This trend line has now been tested eight times, with downwards movement for the last session of the 26th of June being the eighth test.

How Gold behaves at this trend line in the next few days will be a strong indicator. Does the bull run continue or is it over?

This analysis is published @ 03:43 a.m. EST.

On Balance Volume (Beyond Volume Basics) | 23rd June, 2017

Volume alone is not always a clear indicator. It is necessary to add another volume indicator, like On Balance Volume, to add depth to volume analysis and improve accuracy.

Gold Daily 2016
Click chart to enlarge.

On Balance Volume can be used in two ways.

1. When On Balance Volume creates a range draw trend lines across its highs and lows. A breakout by On Balance Volume can sometimes precede a breakout from price, so On Balance Volume can be a leading indicator. Other times On Balance Volume may break out with or after price, it can then be a confirming indicator. Used this way On Balance Volume works very well.

2. Divergence between price and On Balance Volume can be used to indicate weakness and an impending trend change. This divergence can persist for some time prior to a trend change, so it is not useful in picking highs or lows.

Trend lines are drawn on On Balance Volume in the chart above. Resistance is in purple, support in yellow. A long term line is added in pink.

Bullish signals are noted in green arrows on price:

1. Halfway through an upwards trend On Balance Volume breaks above resistance which was prior support. This adds some confirmation to the trend. Traders may have more confidence in long positions.

2. A long term trend line which previously provided support, then resistance, is breached. This adds confidence in the upwards trend continuing.

3. A long term trend line is touched after some time. The bounce up and away is bullish.

4. A breach of resistance is a bullish signal. This illustrates that this technique does not always work. Price continued higher for only one more day before a major reversal.

Bearish signals are noted in red arrows on price:

1. A breach of support is a bearish signal, which should confirm the downwards trend. But a low is found the next day. Again, this technique works more often than it fails, but it can fail.

2. A break of a long term support line halfway through a downwards trend offers confidence in short positions.

3. Another break below a support line offers confidence in the downward trend.

In addition to breaches of trend lines, tests of support and resistance also offer signals.

Using On Balance Volume in conjunction with volume bars adds considerable depth to analysis.

This analysis is published @ 03:41 a.m. EST.

Volume Basics | 21st June, 2017

The activity of buyers is required for price to rise sustainably. This is indicated by increasing volume on upwards days.

The opposite isn’t necessarily true for a falling market. Price can fall due to an absence of buyers, just as it can with increasing activity of sellers. Rising volume with falling price is good to see as it supports the trend, but it is not necessary.

Does Gold’s price and volume conform to this basic principal of technical analysis?

Gold Daily 2016
Click chart to enlarge.

1. This first rise in price is close to textbook perfect. The trend is well supported by volume. Volume does not increase in a straight line each day; some days are lighter than the prior day, but overall there is an increase.

2. This next rise is not so clear, but there is still overall an increase in volume as price rises. Volume is lighter than the prior stronger trend though, so the deep pullback that followed should not have been entirely unexpected.

3. As price falls initially volume declines and then shows some steady increase. The fall in price has support from increasing selling activity.

4 & 5. As price rises volume is not clearly rising. Sometimes the market can drift higher on light volume, so this type of rise is suspicious. The following deep decline again should not have been entirely unexpected.

6 & 7. As price falls volume declines. The market is falling of its own weight.

8. At the end of the fall volume begins to increase.

9. The start of the next rise has some support from volume by day 5. This shows an increase. However, the fifth day volume spike may also be a blow off top signalling an end to the rise temporarily. Blow off tops are not usually the very end; they usually signal a period of consolidation before the trend has a final rise.

The area between 9 and 10 is very unclear, with choppy overlapping price action generally trending higher and mostly flat volume.

10 & 11. As price falls volume declines. The market is mostly falling of its own weight.

When volume clearly supports a trend, then more confidence may be had in it. When volume does not support a trend, it is suspicious. Lack of support from volume will not tell when price will change direction, but it can warn that price may likely change direction and not just consolidate.

This analysis is published @ 03:51 a.m. EST.