Gold and silver futures sold off hard this morning – did you see it coming? Whether you wanted to use it as a trade opportunity or if you just wanted to avoid being blindsided by a dramatic move, having a “heads up” to know to anticipate a large move might be imminent would be useful to any trader.
The tipoff for today’s move came from yesterday’s pattern. Both had a breakout setup for today as Monday was an inside day and an NR4 day (NR4= Narrowest Range of the previous 4 sessions). The breakout setup was the pattern that told us to anticipate an increase in volatility and likely a “directional” move today. If you wanted to trade the breakout setup, we couldn’t know which way the market was likely to move; fortunately we didn’t need to guess. We could let the market decide which way it wanted to go and go along with it.Gold futures daily
Silver futures daily
In the case of the gold futures, we would look for a move beyond close in support or resistance with the expectation that the initial move would be a springboard to the larger move we were anticipating.
For the February gold futures this morning, there were two price levels to watch. The first was the previous day high and low – the standard reference prices for the Taylor Trading Technique. Yesterday’s low of 1714.20 was a good price to watch if you were trading last night; if you shorted it when that was broken it fell to a session low of 1698.50 by about 11:30 PM. That was a move of $1570 per 100 ounce Comex contract.Gold futures intraday chart – Dec. 4
The other price level to watch was the November 15 low of 1707.00 (which formed roughly a double bottom on Nov. 28). Twice this had been significant support; whether or not this held again would give us insight as to whether the selloff would stop or whether still lower prices were coming.
As we saw, 1707 was taken out for the last time around 6:20 AM; by 8 AM it had fallen to a session low of 1692.60. As we knew it was on a breakout signal, the fact that it was trading below our reference prices told us to be short or flat until the we had evidence that today’s selloff had ended.
If you are looking for trading ideas, breakout setups can be valuable to look for – they highlight markets that are poised to potentially move a long way in a short period of time. If you have your own trading methods, breakout setups can help you recognize conditions where markets you are trading may have an unpredictable direction and heightened volatility coming up.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice.
THE RISK OF LOSS IN TRADING COMMODITY FUTURES AND OPTIONS CONTRACTS CAN BE SUBSTANTIAL. THERE IS A HIGH DEGREE OF LEVERAGE IN FUTURES TRADING BECAUSE OF SMALL MARGIN REQUIREMENTS. THIS LEVERAGE CAN WORK AGAINST YOU AS WELL AS FOR YOU AND CAN LEAD TO LARGE LOSSES AS WELL AS LARGE GAINS.