Tag Archives: xauusd

3 Elliott Techniques For Drawing Trend Channels | 20th September, 2017

The three basic Elliott Wave channels are:

1. FIRST TECHNIQUE – IMPULSE

Gold 2017
Click chart to enlarge.

Once enough structure is complete to begin to draw an Elliott channel (about one third to halfway through a wave) use the first technique.

A trend channel drawn using this technique may show where the fourth wave may end. If the fourth wave is contained within the channel, then the fifth wave usually ends either midway or at the opposite edge of the channel. While most markets behave this way, commodities can be different. Commodities often exhibit swift and strong fifth waves which overshoot channels, as in this example.

When the channel is breached by subsequent movement in the opposite direction, it indicates the wave is over and a trend change may have occurred.

2. SECOND TECHNIQUE – IMPULSE

Gold 2017
Click chart to enlarge.

If the fourth wave is not contained within a channel drawn using the first technique, then redraw the channel using Elliott’s second technique.

This redrawn channel may show where the fifth wave may end: either mid way or about the side opposite the fourth wave.

When the channel is breached by subsequent movement in the opposite direction, it indicates the wave is over and a trend change may have occurred.

3. TECHNIQUE FOR A CORRECTION

Gold 2017
Click chart to enlarge.

If the movement is expected to be a correction, then it may be contained within a channel. Most corrections are contained within channels, but a few such as expanded flats are not.

The channel may show where wave C ends, either mid way or at the edge of the channel.

When the channel is breached by subsequent movement in the opposite direction, it indicates the wave is over and a trend change may have occurred.

Published @ 06:16 a.m. EST.

2 Steps to a High Probability Trade Set-up | 15th September, 2017

This is my favourite trade set up. Here’s what to look for and why.

Gold Monthly 2017
Click chart to enlarge.

To begin, look for a trend line which has strong technical significance. In deciding how strong or weak a line is use these guidelines here.

This trend line on Gold’s monthly chart is drawn as a bear market trend line as illustrated here.

Gold Daily 2017
Click chart to enlarge.

Zooming on at the daily chart level to see exactly where the line sits, we can see that price is not sitting perfectly upon it. That may be because this trend line extends so far back, to September 2011. The general idea does appear to be working here today though.

This is the trade set up:

Step 1.

Look for a breach of the trend line. If this is achieved on strong volume, then have more confidence in the breach. StockCharts data does show very strong volume for the 5th of September, which is the daily candlestick on their data that would have been the day of the breach.

Step 2.

Look for price to curve around and back test support at prior resistance (or in a bear market resistance at prior support). Enter in the direction of the larger trend when price tests the trend line.

This set up takes time. In this case a wait of 7 to 8 days after the initial break above the trend line.

Today, the long lower wick and bullish engulfing candlestick pattern offer a little more confidence in this set up.

Why is this such a good trade set up?

With a technically significant trend line, the set up offers an entry point to a trend which traders may have confidence in. The more significant the line, the more significant the breach.

Stops may be set quite close by. Allow a little room for overshoots, and for longer held lines slightly larger overshoots, but stops may be closer than the last swing low or high. This reduces risk.

Published @ 01:15 a.m. EST.

Scale – Arithmetic or Semi-Log? | 30th August, 2017

The choice of what scale to use on your charts makes a big difference to how trend lines sit. Which scale is correct?

Gold 2 Weekly 2017
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The chart above shows Gold 2 weekly on an arithmetic scale. Notice the bear market trend line has been breached, but did not show where price exactly found support and resistance in the process.

Gold 2 Weekly 2017
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The chart above shows Gold 2 weekly on a semi-logarithmic scale. So far price remains below the bear market trend line.

An arithmetic scale is best used for short term price movements. But for long term movements a semi-logarithmic scale is more correct, particularly for markets like Gold which can exhibit blow off tops and selling climaxes.

Any long term movement a year or more should always use a semi-logarithmic or ratio scale.

From Magee (“Technical Analysis of Stock Trends”, 9th edition, page 11):

“Our own experience indicates that the semilogarithmic scale has definite advantages in this work; most of the charts reproduced in this book employ it… Percentage relations, it goes without saying, are important in trading in securities… certain trend lines develop more advantageously on the ratio scale.”

From Pring (“Technical Analysis Explained”, 4th edition, page 68):

“Arithmetic scaling is not a good choice for long-term price movements, since a rise from 2 to 4 represents a doubling of the price, whereas a rise from 20 to 22 represents only a 10 percent increase… For this reason long term price movements should be plotted on a ratio or logarithmic scale. The choice of scale does not materially affect daily charts, in which price movements are relatively small in a proportionate sense. For periods over 1 year, in which the fluctuations are much larger, I always prefer to use a ratio scale”.

Published @ 04:28 p.m. EST.

Learn Elliott Wave – Spot The Mistakes | 3rd August, 2017

For those who want to hone their Elliott wave knowledge, have a go at spotting my deliberate mistakes:

Gold Daily 2017
Click chart to enlarge.

This one is easy (at least, I think it is and I’ve really tried to make it easy).

There is one mistake in the triangle (just one!) and one mistake in the impulse.

Can you find them both?

Name the rules which I have deliberately broken here. Answers will be posted in comments tomorrow or the day after.

Note: During the process of preparing this post, I found a solution that fixes my main problem with the current alternate wave count. This solution will be published in tomorrow’s Gold analysis.

Published @ 05:49 a.m. EST.

Volume Basics | 2nd August, 2017

Volume analysis is essential to a full technical analysis. One of the simplest techniques is to look at volume during a consolidation and note which days, upwards or downwards, have strongest volume.

Gold Daily 2017
Click chart to enlarge.

Gold has been within a large consolidation since about January 2017. A small resistance zone is about 1,295 to 1,300. A wide support zone is about 1,195 to 1,215. During this period of time, it is two upwards days that have strongest volume and this suggests that an upwards breakout may be more likely than a downwards breakout.

This technique does not always work, but it works more often than it fails. This technique is an exercise in probability and not certainty.

Published @ 04:00 a.m. EST.

Will Gold Backtest An Important Trend Line? | 18th July, 2017

This chart was last published on 9th of July showing a breach of an important trend line.

Gold Daily 2016
Click chart to enlarge.

Price is now bouncing up for another test. There is a little room still for a little more upwards movement, if price wants to come up to kiss the trend line.

Again, adding volume makes this simple trend line more powerful. The breach was supported by volume, but now the bounce is not. The volume profile is bearish, adding to confidence that price may now stay below the line.

This analysis is published @ 05:05 a.m. EST.

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.

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.

Market Correlations – Statements and Assumptions | 20th June, 2017

Occasionally, members and visitors to this website make a statement along the lines of “market X is doing this, so how come you think Gold is going to go up / down?”.

Such statements are based upon unacknowledged assumptions that the markets have a correlation. The problem with assumptions is they can be wrong. So is there a simple mathematical technique to determine if two sets of data are correlated, either positively or negatively?

Gold Daily 2016
Click chart to enlarge.

Yes, there is: by looking at the correlation co-efficient range between two sets of data.

Correlation co-efficient ranges from -1 to +1. A perfect positive correlation will have a correlation co-efficient of +1. A perfect negative correlation will have a correlation co-efficient of -1.

Two sets of data which have a positive correlation will have a correlation co-efficient between +0.5 to +1. Two sets of data which have a negative correlation will have a correlation co-efficient between -0.5 to -1.

Any two sets of data which have a correlation co-efficient between +0.5 and -0.5 are not correlated.

Any two sets of data which have a correlation co-efficient that spends any time between +0.5 and -0.5 does not have a correlation which is reliable. This area of unreliability is shaded in the chart above for several markets which are often assumed to have a correlation to Gold price.

GDX, US Bonds, US Crude Oil, the US dollar index and even Silver do not have a reliable correlation with Gold price. All of these markets have correlation co-efficients which spend time in the shaded areas.

Even if these markets do sometimes exhibit a correlation with Gold, the point is that because this is not always true that when it is so it cannot be assumed to continue. The math shows that it does not.

To base an analysis of Gold on an assumption that another market is moving in a particular direction, and therefore Gold must move in a particular direction, is to base the analysis on assumptions and not data. Such assumptions are unreliable, and why you will not find then in my analyses.

To base an analysis of Gold on actual data and math is more likely to lead to accurate predictions and profitable trading. This does not mean the analysis will always be right, but it does mean the analysis will be based on facts and not assumptions.

This analysis is published @ 04:13 a.m. EST.