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Ideas You Can Trade: Gold - Bullish Support Fails and Drop Follows

Posted by Steven Hatzakis on Sep 5, 2013 4:14:00 PM

GOLD: Bullish Support Fails In Current Session and Bearish Drop Follows

The daily candle chart below shows Gold trading near 1368.25 (as of publication) in the current session and nearing lows for the day (current low near 1364.95) after breaking below the support line of a steep bullish trend line (point 1) which had held on each of the last 4 trading days.

Last week,  we discussed in a previous article the likelihood of a bearish reversal after resistance was encountered under the converging lines of the short term bullish support line (point 4) with the median line of the medium term bearish channel (point 2). That reversal happened and came to fruition along with the continuation of the very short term bearish support line (of point 5) which was also correctly predicted.

Since then, a new resistance line parallel to this very short term bearish line (point 5) has developed and appears to contain gold within this new channel and could support a descent with a short term bullish trend line (point 6) just below - which if failed – may target the support line of the medium term bearish channel (point 2).

Although Gold has failed today to maintain the support it had (on point 1), If this steep bullish trend line (point 1) can be regained, then the resistance line of the steep bearish channel (point 3) and the median line (of point 2) would need to be overcome in order to regain the short term bullish support line (point 4). Trend-followers may view today’s price action as a pull-back in a bullish trend and opportunity to buy, whereas contrarians may believe that the breakout to the downside is a genuine reversal.

  

 Below are examples of how to trade a bullish continuation or a bearish reversal:

1.  BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1402.00 with a Limit to take profit @ 1418.00 and a stop-loss @ 1385.00 Risk/Reward Summary: Limit risk = + 16 points profit / (-17) points Stop-loss risk = Gain to Loss ratio = 1.06

2.  BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1364.00, with a Limit to take profit @ 1354.00 and a stop-loss @ 1372.00 Risk/Reward Summary:   Limit risk = +10 point profit / (-8) Stop-loss risk = Gain to Loss Ratio = 1.25

 Medium term daily candles:

golddaily september 5 2013 note

 

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