|
Since its dramatic fall in September last year I have been watching for silver to form a clear trend or provide some form of tradeable setup. Finally, at the end of December we saw a double bottom form, and this week an ABC long trade which looks like a first higher bottom from it.
Let’s take a look at whether this would be a trade we might like to take. Firstly we could investigate the strength of the double bottom at point A. We can see that this price level has provided support on two previous occasions back in January and September 2011, and is actually a triple bottom. Taking a look at some resistance cards we can see quite a few reasons for this support level. You might like to set up some of the following resistance cards at home. Chart 1: Support Level on Silver around $26.15
click to enlarge
Starting with a Ranges resistance card from the 91 low to the 2011 high, we can see this support level lines up with 50% of that range. I have also put some circles on the chart to highlight where that card has been working in the past, so we should watch the various price pressure points as silver moves through them. Chart 2: Ranges Resistance Card on Silver
click to enlarge
With Silver we have several lows resistance cards we could look at. I found that the triple bottoms line up with 50% multiples of both the 1982 low and the 1991 low. I have shown these in Charts 2 and 3, but I suggest you work it out on a calculator or reproduce it yourself at home in ProfitSource. Chart 3: Silver with 1982 Lows Resistance Card
click to enlarge
Chart 4: Silver with 1991 Lows Resistance Card
click to enlarge
Now let’s take a look at the trade itself. I have shown the ABC setup on Chart 5 and we can see at the time of writing that the 50% level has almost been touched. The daily swing chart shows the trend is up, though the weekly and monthly swing charts are both still down. We were able to achieve a nice low risk entry well before the 25% level, so our reward to risk ratio will be good even if we look to exit at 75%, though I would be more inclined to use the Currency style of stop for this trade. Chart 5: Silver Daily Bar Chart with ABC Long Setup
click to enlarge
I would suggest that you do some back-testing of your own to determine the best method for trailing stops, but a 2 or 3 contract system might work well if we see any significant move out of here. For example the run up out of the January 2011 low would have done very well from trailing one day swings, but that wouldn’t necessarily be a good method if we continue to see a choppy market.
It looks like finally our patience with Silver is about to pay off with a nice ABC long trade. I will be watching carefully for a more sustained up-trend from here, and further long opportunities. However, should the triple bottom be taken out this will be a sign of weakness and then I will on the watch for short trades.
It’s the Journey
Lauren Jones
|