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One of the great futures battles between the bulls and the bears is taking place in gold futures recently. The daily chart right hand side below has once again seen gold react at an important multipoint trendline. This is now "significant" trendline support. It won't be long before the upper or lower trendline is faced with another test.
The chart is what I would refer to as "ripe" for an "Initiative" type move into "Vertical development" or a market that has potential to be in "Imbalance". A market that is in imbalance is a market that does not have enough offers or bids to meet large orders that come in "at the market". I don't want to be on the wrong side of those orders. Stop losses that get triggered in a vacuum are miserable.
Nothing is certain in this business except for risk. While we cannot control what the market does, we can control ourselves and how we react to opportunity.
Who admits defeat the bulls or the bears? One thing is for sure, I have no desire to be on the losing team.
Once the losing side is identified, it is destroy or be destroyed in the futures zero sum world. It sounds harsh, but if traders aren't up for the realities of the task, which are professionals attempting to take every nickel of their money; they probably shouldn't be trading futures.
This is why I believe it is best to correctly identify the phase of development a market is trading in first and foremost, and wait and prepare to strike at favorable trading locations with proper risk management that will get you out of the trade once you are proven wrong. There is always the possibility that there is a false breakout. It depends on who has the strong hands and who has the weak hands in the open interest.
Now one thing is for sure, when it comes to studying the auction or making trading decisions I don't care what "Joe the expert" has to say on the fundamentals for gold. If he is right and gold takes off to the upside outside this constricting pricing pattern, he will be glad I am on his side, because I will do my part in squeezing the shorts. However if he is wrong, I can tell you I am not going down on the ship with him.
One last thing I want to point out is on the 5 minute chart today. There was a textbook pattern I refer to as the bullish "N formation". In Japanese Candlestick analysis it is similar to a "rising three methods". This pattern is a large bodied bullish candle, followed by 3-5 small bodied bearish candles, and then followed with another large bodied bullish candle. When I mention patterns that are reliable and more reliable, and it depends on the timeframe, this is one that on a 5 minute chart I wouldn't ignore.
(Click on chart to expand)
My most previous post on gold coming to a fork in the road can be found here: http://scottpluschau.blogspot.com/2012/07/gold-is-coming-to-fork-in-road.html
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Source: Gold once again reacts at critical trendline
