P1: PIC/PIC c07
August 12, 2008
Printer: Yet to come
HIGH PROBABILITY TRADING STRATEGIES FOR ANY MARKET AND ANY TIME FRAME
of view, it is likely the XAU will eventually break up, not down, from the trading range in a new bull trend to a new high. With a complex correction, there is no high probability pattern we can count on to identify the last decline in the correction. Any low may be the final low of the correction. The objective is to identify conditions that should result in a weekly low in order to position long for a potential bull trend breakout to a new high. This would have been the same strategy for about a year as the XAU made several weekly lows, followed by advances lasting several weeks but never breaking away to a new high. As of the last bar on the weekly chart in Figure 7.1, the XAU has tested the 50% retracement area of the May 2005 to May 2006 bull trend for the fourth time. Based on the weekly cycles of the past 18 months or so, the Time Band for a weekly low is a narrow two-week period of the WE August 10 through the WE August 17. The Time Band is based on the overlap of the low-low and high-low cycles, although only the lowlow counts are shown on the chart. I choose an eight-week momentum lookback period where the DTosc reached the OB and OS levels at the weekly highs and lows for the past 18 months or so. If this momentum cycle continues, the next weekly momentum bullish reversal should be followed by a rally lasting at least several weeks. The weekly momentum is oversold. If the recent momentum rhythm continues, a momentum bullish reversal should be made in the next bar or two.
Summary of XAU Weekly Position as of the Week Ending August 17 Momentum: Oversold. A weekly momentum low is likely within the next bar or two followed by a rally lasting several weeks. At the least, the immediate downside should be very limited before a weekly low is made. Pattern: Corrective. The trading range is typical of a corrective or consolidation pattern which is typically followed by a rally to a new high. Price: The 50% retracement area has been tested three times. The XAU is currently back in that range. Time: The WE August 10 to WE August 17 is the weekly Time Band for a low. Trade Strategy: Go long. With weekly momentum, pattern, price, and time all in a position for a low, right now, the trade strategy is to consider a long position execution on the smaller time frame daily chart. The objective of the short-term unit is to exit on a retracement of the prior decline in the event only a corrective rally is made. The objective of the long-term unit is to hold for a probable bull trend advance to a new high.
Figure 7.2 is the XAU daily chart through Friday, August 17, which is the same date as the last weekly bar on the weekly chart in the previous figure. All of the relevant information is on the chart.