Gold & Silver

Discussion in 'Commodity Futures' started by Cutten, Dec 29, 2003.

  1. Cutten


    These are both starting to get extended a bit, and also coming close to overhead restistance.

    Gold has a resistance level around 418-420 from 1996 which we are approaching. Silver is coming up close to the $6 psychological level, so I'd expect some resistance there too. Silver is also a bit extended, having rallied over 100 cents in the last 2 months, and is now poking above the upper 2 SD Bollinger band and well above the 50 day moving average. Silver has also had a spiky day up today in thin trading, which I suspect is shorts getting somewhat squeezed during holiday trading.

    As a result, I think now is a reasonable time to take some profits on Silver positions. I am still holding core long positions for the longer-term, but selling off some now to book good profits and reduce risk seems to be a good idea. I think the chances are that you will get an opportunity to buy them back, say around the 5.45-5.65 level. At worst, if the market runs away from you, I think the next pullback should carry the market back down to where we are now.

    Gold is not so extended so I would hang on for now and wait and see how it reacts around the $418 level.
  2. iriekity


    Never sell the 420 ;-)
  3. Cutten


    Silver just gave a clear reversal signal today after breaking through $6. I'm exiting my positions and looking to reload lower down.

    I am also taking off about 1/4 of my gold holdings after the metal hit the $418 level I mentioned earlier. I will look to buy back either around $400, or if the metal has not shown any signs of weakness within 2 weeks.
  4. Im unloading my gold here, too. I expect the dollar to make a little comeback after the 1st. Nothing I can point to for a reason other than a hunch. I bought gold at 280 and 330 on a hunch so I guess Ill continue to trust my instincts.
  5. Cutten


    I think there might still be a few days left on the dollar decline, but I know what you mean.

    Gold is also weakening now, down on the day after touching the $418 level. I am selling another 1/4 and just holding onto my core bullion position.

    The thing your "hunch" may be detecting is that the market has started to look like a one way bet recently. And when a market starts to look like a one way bet, every man and his dog piles in. Once everyone who has spotted the trend has bought, there is no one else left to buy except the shorts, and so the move will end and reverse as soon as they have panicked out and covered their positions.

    The silver chart looks like the shorts panicked out in the last day or two, so now I don't see how anyone else is left to buy, unless we get some kind of major surprise news. The Euro, Swissie, Sterling etc now appear to be undergoing the same kind of behaviour, and IMO are not too far from a short-term top. I don't think it has occured just yet, but it wouldn't surprise me if it happened within the next few days.
  6. Cutten


    Obviously I was too early on the silver - it blew right through $6 and then had a huge move up. I guess that was where the shorts panicked out lol. Gold also spiked up severely and blew through the 418-420 level.

    IMO, when you get something wrong like this, you need to take a close look at what happened. In this case, I made several mistakes:

    i) I took profits too early, trying to top-pick in a major uptrend, before the really major volatility expansion had occured.

    ii) I took profits just before a level was reached, rather than waiting for the level to get breached and stop-running/panic buying to occur.

    iii) I exited my whole silver position on the way up, and had no hedge against the move continuing to accelerate.

    Lessons learned:

    i) when the market is in a good uptrend, do not take profits *before* a major level is reached. Rather, wait for the level to get broken through. This way you don't miss the spike up that can occur when a major level is broken.

    ii) in a major uptrend, when you feel tempted to top-pick, bring up trailing stops instead. A good place to put them would be below the low of the first "breakaway" day i.e. the day when the move seems to be accelerating towards a climax.

    In this case, rather than sell in the 5.90-5.95 level, I could have simply placed a stop below the low of Monday Dec 29th (e.g. at 5.86), then participated in the rest of the move and only risked about 7-10 cents to do so.

    iii) when a trend starts to accelerate don't be too quick to get out. The best price moves often come in the last couple of days of a move - so wait for a major spike up day, then bring up your trailing stops to below the LoD, and wait for the *2nd* day of extreme price action before you start taking profits.

    iv) finally, if/when you do decide to sell into a big spike rally, don't exit the whole position. Rather, look to sell maybe 1/3-1/2 at what you think is near the high (using the rules above), and use trailing stops to allow you to run the rest of the position. Each time there is a big spike up, place your trailing stop just below the low of that day. This means you can still make good money on the remaining 1/2-2/3 position if you are too early, whilst staying protected with the trailing stop in case the market reverses and starts a quick move back down. Alternatively, buy some puts.

    v) If/when you book profits and exit your position (or part of it), you need a hedge against a resumption of the move, to avoid missing more big up days. So once your trailing stop gets hit, or you exit into a rally, you should place a buy stop a bit above the HoD. In other words, treat your profit-taking like a short sale.

    Applying these lesson to Gold, I should be placing trailing stops now below the LoD - which means around 420-21. Or I should buy some $420 puts. In case of a continuation of the move, I should re-enter on a break of the HoD, so buy around $429. This is a risk of about 2% to protect my profits, whilst not totally missing out if the move resumes to the upside.

    So, there's the lesson from my mistake. I paid for it with 40-odd cents worth of silver, but for you guys it's free :D
  7. let your profit run...
  8. was the first time in OVER A MONTH that it closed above the previous day's high!

  9. in dollar based on futures charts traded in USA CME hours ?
  10. #10     Jan 10, 2004