Taking a look at the daily chart of Gold
As you can see it has formed a bear flag with declining volume and the price has drifted up into a resistance level. This combination typically leads to lower prices. With international fears floating around and the fact that inflation has started does make me a little weary of shorting gold but one thing we have learned over the years is that trading on fundamentals and news clips seen on TV is not a reason to pass on a setup if one forms in the coming days.
The only thing that pays in the stock market is when the price action goes in your favor. This is why we focus on price, volume and momentum while avoiding what others are saying elsewhere. Trading is a numbers game and we put our money on the table when the odds are clearly favoring one direction. Unfortunately we are trading trades against what the masses think and feel is the right thing to do.
Gold Miner stocks are forming much of the same pattern as gold bullion but today (Wednesday) the chart actually put in a possible reversal candle. If this is correct then we should see gold and most likely silver follow suit tomorrow by moving lower and possibly even start a correction.
Gold Swing Trading Conclusion:
In short, gold stocks sold off strong today while both gold and silver closed only slightly lower. When this happens near a resistance zone, with a bearish price and volume patterns I start to look for a shorting opportunity. It has yet to happen and we are not going to jump the gun, but we are waiting for the right opportunity to take advantage of these trading instruments.
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