The recent completion of a Cup and Handle pattern on Gold price action leaves an open question about the historical performance after such a technical formation plays out. While Cup and Handle patterns are generally considered bullish, there are legitimate historical reasons to question maintaining a long position after the pattern completes.
Pattern completion often marks exhaustion points
======================================
Historically, the completion of a Cup and Handle pattern indicates near term exhaustion of buying pressure rather than the beginning of a sustained move higher. This occurs because:
1) The pattern completion itself often represents the culmination of a buildup in speculative long positioning.
2) Technical traders who entered based on the pattern may take profits once their target is achieved.
3) The psychological milestone of completing the pattern can trigger selling from larger institutional players.
For example, the technical Bull flag of 2001 on completion saw a 40% following correction. Were that to happen on the Cup and Handle pattern upon completion price action would return to $1950
2001 Bull flag
Monetary policy transition periods
======================================
Historical analysis shows that gold's technical pattern reliability decreases significantly during periods of monetary policy transitions. If the Cup and Handle completion coincides with a shift in central back policy stance (particularly Federal Reserve policy), historical precedent suggest heightened risk of pattern failure.
Looking left, breakouts in the Bond market resulted in serious downside pressure for Gold price action, the Federal Reserve may not have a choice in the months ahead. Especially as the cost of servicing the debt grows and foreign entities increase Bond market selling pressure.
10 year Bond breakout
Conclusion
======================================
While the Cup and Handle pattern is traditionally viewed as bullish, historical data specific to gold markets suggest caution about maintaining long position immediately following pattern completion. The historical tendency toward mean reversion, pattern reliability concerns, volatility expansion, and correlation breakdowns all suggest that a more measured approach may be warranted.
Ww
Pattern completion often marks exhaustion points
======================================
Historically, the completion of a Cup and Handle pattern indicates near term exhaustion of buying pressure rather than the beginning of a sustained move higher. This occurs because:
1) The pattern completion itself often represents the culmination of a buildup in speculative long positioning.
2) Technical traders who entered based on the pattern may take profits once their target is achieved.
3) The psychological milestone of completing the pattern can trigger selling from larger institutional players.
For example, the technical Bull flag of 2001 on completion saw a 40% following correction. Were that to happen on the Cup and Handle pattern upon completion price action would return to $1950
2001 Bull flag
Monetary policy transition periods
======================================
Historical analysis shows that gold's technical pattern reliability decreases significantly during periods of monetary policy transitions. If the Cup and Handle completion coincides with a shift in central back policy stance (particularly Federal Reserve policy), historical precedent suggest heightened risk of pattern failure.
Looking left, breakouts in the Bond market resulted in serious downside pressure for Gold price action, the Federal Reserve may not have a choice in the months ahead. Especially as the cost of servicing the debt grows and foreign entities increase Bond market selling pressure.
10 year Bond breakout
Conclusion
======================================
While the Cup and Handle pattern is traditionally viewed as bullish, historical data specific to gold markets suggest caution about maintaining long position immediately following pattern completion. The historical tendency toward mean reversion, pattern reliability concerns, volatility expansion, and correlation breakdowns all suggest that a more measured approach may be warranted.
Ww
Note
Perhaps the "Monetary policy transition" is the abolition of the Federal Reserve!You can't tell what the next 24 hours will bring...
Trade active
Pattern traders cashing in... Note
6% correction with a drop of $200, safe to say pattern traders are in control.
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Allow 3-6 months on ideas. Not investment advice. DYOR
bc1q2eckdzh0q8vsd7swcc8et6ze7s99khhxyl7zwy
Weblink: patreon.com/withoutworries
Allow 3-6 months on ideas. Not investment advice. DYOR
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
BTC
bc1q2eckdzh0q8vsd7swcc8et6ze7s99khhxyl7zwy
Weblink: patreon.com/withoutworries
Allow 3-6 months on ideas. Not investment advice. DYOR
bc1q2eckdzh0q8vsd7swcc8et6ze7s99khhxyl7zwy
Weblink: patreon.com/withoutworries
Allow 3-6 months on ideas. Not investment advice. DYOR
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.