GOLD - Using price patterns to time reversals of trends.With the market watching out for Gold to hit the $2000 level, once this occurred and broke higher you have to always be cautious and take a step back before jumping into any longer term trend continuation plays.
When new record highs or lows get established in any market that is highly liquid, its good to keep your options open and try and look at the market with also a contrarian point of view as well.
To many new and novice traders will just expect prices to keep climbing and jump into the move with no account for strategy, analysis or more importantly a study of price.
Looking at Gold, we wanted to keep an open mind and read the price action especially when your looking for counter trend moves as this will lower the probability of a trade but when you are patient and follow the structure of price you can get some good nuggets of information that can really help you time your trade.
As you can see on the 1 Hour chart, price was moving up nicely until it formed a bearish 3 drive pattern in the process. This pattern can be a good indicator of price exhaustion especially when you can see these being formed on no less then a 1 Hour time frame.
Once we saw the pattern complete, that alone is not enough, we need to be patient and find a lower trend line, preferably with multiple hits registered on the line for if this breaks to the down side as well, this not only gives us good reason to enter the trade short but it allows for greater timing and accuracy of the trade.
We would look to place our stop just above the 3rd and final drive high to start with, as we are trading the pattern so there is no need to place it very far away.
