Gold Intraday Descending Triangle Break Example

Jun 30, 2008: 12:27 PM CST

Gold prices and the Gold ETF (GLD) broke an interesting descending triangle early this morning that I wanted to highlight to you.

GLD 5-minute chart (StreetTracks Gold Trust Shares):

Price began the day with a morning gap that was almost instantly faded for the opening trade.

Price then rebounded off Friday’s close and the 50 period moving average, which set-up another short-term ‘scalp’ trade, but failed to reach above the intraday high, and inflected back down to retest the rising 50 EMA and yesterday’s close, and then began to consolidate into a tight coil with numerous doji candles forming close by (red arrow).

At this point, you could have drawn the converging trendlines which set-up the descending triangle classical chart pattern and either

1.  Entered aggressively (short) inside the triangle, in anticipation of a break

2.  Entered conservatively (short) once the break occurred.

In either case, your stop would have been above the upper trendline (wherever you were comfortable) and the target would have been set for a ‘measured move’ of the height of the ‘right’ triangle, which was around $91.00 (the corresponding value for the futures contract @YG would have been $910 per ounce).

In this case, momentum carried price further to the downside than expected, and overshot the target by $0.40 ($4.00 for the @YG).

Price then found support about the rising 200 period moving average and then inflected back up to retest higher moving averages.

For reference, a negative momentum divergence and a Low ADX reading (less than 15) preceded the triangle and eventual breakdown.  This example serves as a reference for a classic descending right triangle and appropriate intraday trading tactics.


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