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Silver - Establishing A Long Position. Strong Volume Is Positive

Wednesday Evening  6 July 2011

  In our previous article on silver, mention was made of the higher
time frames.  We discussed the Quarterly chart, [See  Silver - Define
Your Purpose
, click on http://bit.ly/it4ZGm, third paragraph, and
fourth paragraph for Semi-annual for chart below.]   We said the
close for the Semi-annual at the bottom third was a significant
difference over the lower range close of the Quarterly, not shown. 
What you see on the chart is that the close shows buyers entered
the market.  The highest volume bar speaks for the activity at the lows.

 This wide range bar suggests a trading range will develop, and there
is quite a lot of room on the upper range in which to be profitable in
buying at the lower end of the range.  Because this is a 6 month
chart, it is not to be used for timing, obviously.  We show it to put the
market into a context as to why we are still so bullish on silver, despite
the large decline on the lower time frames.

 For anyone who did not read the previous article, we gave extensive
coverage to monthly and lower time frames as a backdrop for this
article, a continuation of a developing plan.

 SIA S 6 Jul 11

 Getting right to the heart of where to enter, and we suggest if you
did not see the theme developed from the last article, it would make
sense to read it to appreciate these lower time frame actions.  When
price held on 1 July, it formed a higher low.  Once we saw that, it
then became a matter of looking for a reason to be a buyer.

 The initial pre-opening day session activity showed a rally to 34.80
and then a small pullback.  We entered an order to buy at 34.45,
expecting more retesting, but price immediately rallied on high
volume, the highest volume of the day, and we never had a chance
to get filled.

 Coming into Wednesday, price began to correct the previous day's
and the overnight gains.  One of the best places to buy is a retest of
a breakout.  When we saw the high volume bar down that retested
what should now be support, it was just a matter of pulling the trigger,
if there were no further downside follow-through.  You can see where
and when a decision to enter the market was made.

 There was still the issue of strong resistance at the $36 area, but
that was future, and we were dealing with the present tense.  The
next chart shows the balance of the Wednesday's activity and part
of the developing overnight activity, as we write.

 

SIU 20m 6 Jul 11 

 It turns out the the decision to buy after the retest was a good one,
indicated with the "Buy" on the chart.  You see a closer look at the
small breakout in the middle of the chart and why we then viewed
that horizontal line now as support.

 After entering the market, we knew HOW the market reacted to the
supply trendline sloping down from the June intra day highs would
provide important information about the position.  The overnight
activity developed just under the supply trendline, starting around
1 a.m., which represents resistance.  Now, we  are coming back to
it during the day session, and we circled that activity and called it
absorption. 

 Why?

 Because price was NOT reacting away from resistance; it stayed
right there.  Volume was growing, and that was another positive sign
that an upside breakout was likely to happen, as it did.  Once price
rallied above resistance, you can see how that line acted as support,
but more importantly, we had confirmation that the trade decision
carried a stronger likelihood of being profitable, and that is the
purpose behind making informed trade decisions.

 Protective sell stops were raised from 34.77 to 35.04.  Whenever
ANY position is taken in the market, a protective stop is ALWAYS
entered at the same time.  It is folly to have a position on and then
try and make a detached decision on where to exit.  Doing it ahead
of time eliminates that.

 At this point, what remains is to manage the trade.  Anything can
happen.  While we have a desired edge, right now, there is still
ample room for price to move in both directions, but that is the
future, and we have no clue HOW activity will develop moving forward. 
All we know right now is that probability is growing in favor of the long
position.

Questions/comments to mn@edgetraderplus.com
Web site:  www.edgetraderplus.com

 SIU 20m 4 6 Jul 11