Wednesday Evening 26 January 2011
Those who have been tracking our silver analysis will know why
a long position was taken during the morning session when price
rallied on strong volume out of the trading range. Let us set the
stage in order to see how a decision process can evolve as
developing market activity generates new information.
During silver's current decline, we need to see stopping action
to indicate that price will turn around. It looked like last Friday's
small range bar could have been just that, and we made that
point, at the time. [See Silver - Still Bullish,
click on http://bit.ly/dTiH6S, starting at third paragraph, plus chart].
We also indicated in the last paragraph that the intra day activity
would be monitored for signs of a turnaround. One did not develop.
A lower low, next day, negated it as a potential stopping action bar.
There is another small range bar, and it occurred on Tuesday.
Price has since rallied from that level, so IT turned out to be a
stopping action small bar range. What was the difference
between the two? The answer to that was found in an article
from Tuesday, Silver - Know Your Time Frame, where we
discussed different time frames and showed a chart that offered
potential support for that day's small bar range.
[click on http://bit.ly/hvA061, starting after second chart]. We
showed a convergence of two different support points for silver.
The same price level was also on the weekly chart, which was
the second chart in the article.
What this does is show how finding potential support/resistance
points, especially when two or more meet at the same level, and
in this instance, there were three, can improve one's edge in
making a trade decision. So the answer as to what makes a
difference between two similar small range bars where one
means nothing and the other starts a turning point is found in
the next chart.
As in real estate, location, location, location of price is also
important, especially when one takes the patience to wait for a
pattern to develop, see a convergence, and also have a plan
on how to take advantage of that developing market activity
This chart captures what we saw at the time a decision was made
to enter the market from the long side. If you go back and look at
the very last chart from Tuesday's article, [http://bit.ly/hvA061],
you will see how we said to wait for a turning point in the hourly
chart to occur before even considering a long position on a daily
chart, and you will see the parallel channel line that had to be
broken to prove a turn in the hourly trend changed from down to up.
The chart below shows how price developed into a small trading
range, and that gave us two important pieces of information:
1. a breakout will occur as price moves along the RHS of the
trading range, and the further price moves right, the closer is the
resolve. 2. Price stopped declining, for it to turn into a TR, and
that can lead to a change in trend direction.
Exercising patience and letting the market develop allows one to
implement a trading plan, based upon established rules. It then
becomes a matter of execution...NO guesswork involved. It does
not mean that a trade is guaranteed to work, but following such a
plan over a series of trades WILL guarantee a positive outcome.
The Law of Probability demonstrates that statement to be true.
We finally went long after the breakout bar, second from the end,
at 26.13. Why? Look at the wide range rally. It shows ease of
movement to the upside. Then look at the volume for that bar...a spike higher in activity as price rallied. That confirms there is
demand behind the move, and it is occurring at the end of the
RHS of the developing TR. [RHS = Right Hand Side;
TR = trading Range].
Patience, Points, and Plan all converge as price does at support.
Like we said: it then becomes a matter of execution.
Results? Last chart.
This as of the writing of this article. Just as we saw stopping
action on the downside, not that the turn in the hourly trend has
been confirmed, we will look for stopping action to the upside.
We are aware that the daily trend still points down, and it could
be that a turn in the hourly may lead to a turn in the daily, but
no one knows how that will play out, yet. We also know that
the weekly chart made a first degree correction of four weeks
down and is at support, [http://bit.ly/hvA061, first paragraph
after first chart.]
Anyone who says markets are random does not have a clue
how they function. At times, they are like poetry.
We found an edge and worked it.