A 60 Minute Internal Look at GLD Breakaway Gap

Sep 3, 2009: 12:43 PM CST

I wanted to step further inside the GLD break and highlight the initial break, apex test, and then breakaway gap as this served as an excellent example to showcase these concepts.

I’ve been highlighting the Gold and GLD triangle for a few weeks now, expecting an imminent breakout soon.

Remember that price has a tendency to move in fractal patterns (or “patterns inside patterns”) and this shows a great concept of that point.  Reference back to the earlier “Gold Breakout” post I wrote earlier this morning to see different perspectives of the larger triangle.

GLD has a longstanding tendency to be ‘choppy’ or ‘gappy’ as a result of gold’s early-morning activity moving before the ETF opens and has time to catch up to the overnight and morning activity.  This means you shouldn’t apply standard “gap fade” tactics to GLD.

Price initially broke out of the smaller triangle on August 28th before gapping back down and supporting on the higher trendline.

The “Apex” is the point where the two converging trendlines meet, and if price breaks out ahead of the apex (it often does), then sometimes price will pullback and “test” or challenge the apex level which often gives the best opportunity to enter a trade.

The stop-loss would be tight – just on the other side of the lower line (about the $92.50 area) and then entry would be any price above the upper trendline at $93.00.

In this case, a small doji-like (or spinning top) candle formed just prior to the actual apex, which gave another decent confirmation of the high probability, low risk entry there.

Aggressive traders could have entered at this spot, though more conservative traders might have been better waiting for official confirmation – in the form of a sudden impulse like a gap… which occurred yesterday (September 2nd) on a higher than normal volume surge off the open.

The lesson learned is that with breakaway moves, you often don’t get a generous entry point in a momentum or break-out move.  It’s uncomfortable to enter at morning price highs after a gap – but you have to plan ahead and know expectations in advance in the event that gaps from consolidation occur.

Volume has surged along with price, which confirms the higher prices and shifts the odds to favor continuation.

Be sure to study the chart for additional insights and trading lessons you can use the next time a similar pattern occurs.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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