Lesson from Gold’s Three Push Divergences into 1800

Aug 11, 2011: 2:06 PM CST

Intraday traders had a great example of the “Three Push” pattern complete with multi-swing negative divergences into an overhead “Round Number” resistance level in Gold.

Let’s take a look at how the classic pattern set-up and learn the trading lessons from this event:

First, let me say that REVERSAL style trades (like this) are inherently greater in risk than standard Retracement trades (like flags), but some traders just can’t resist going for that golden reversal – especially on the intraday frame.

Gold has been powering higher after breaking firmly above the $1,550 then $1,600 reference levels.

If you can’t resist Reversal trades, then you should learn the “Three Push with Divergence” Set-up.

This is a classic set-up with a modern twist.  Price has a tendency to exhaust itself after three symmetrical swings or “pushes” in price, as we can see above.

Push #1 was on the gap open of August 8th; Push #2 was not surprisingly on the gap opening on August 9th; and finally Push #3 was the sustained price swing into the $1,800 level on August 10th.

A Three-Push pattern is similar to your classic Price Patterns such as Bull/Bear Flags, Head and Shoulders, and Triangles – these need no outside indicator references to spot them in real time.

Of course, indicators and volume readings are helpful, especially if you’re anticipating a short-term reversal.

A Good Three-Push Reversal Pattern should be accompanied with negative momentum and volume (not shown) divergences into the final swing high.

It’s even better if the pattern forms into a prior resistance level or round number like $1,800 as happened here.

Using the 3/10 Momentum Oscillator, we see a decline in the momentum peaks/highs on each of the Three Pushes, which resulted in the lowest oscillator peak into 11:00am – when price pushed into the $1,800 pivot.

Very aggressive intraday traders can short into the $1,800 resistance, but price has a tendency to run just a bit beyond simple round numbers at times.

Though you can’t see it in the scaling of the chart above, gold futures ran overnight to $1,815 (GLD did not make a higher high beyond the August 10th high).

Here is the same chart – though choppier – in the popular GLD ETF:

While aggressive entries short INTO resistance, conservative entries short on a breakdown of a rising trendline, EMA, or similar price reference level AFTER price begins falling from expected resistance.

Volatile markets tend to call for wider stops and wider targets than normal – though $1,800 was the daily peak, the overnight session took gold to $1,815 before reversing today.

Ultimately, the Three Push Reversal Pattern with divergences set-up today’s negative session in Gold which corresponded with the increase in margin requirements which historically have driven futures prices lower on their announcement.

Reversal set-ups are quite risky but do have their place in experienced traders’ toolbox.  Study this example for additional insights in the risk with reward of three-push patterns with divergences.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

9 Comments

9 Responses to “Lesson from Gold’s Three Push Divergences into 1800”

  1. Vereas34 Says:

    ok, now what's gold doing next??

  2. ink Says:

    Gold will either go up, drop some more, or oscillate up and down within a narrow trading range.  Sorry that I can not tell you more, but my crystal ball looks fuzzy these days.

  3. rental mobil Says:

    Nice article, thanks for the information.

  4. Lesson on Intraday Divergence Reversal Signals in Gold | Afraid to Trade.com Blog Says:

    […] Reversal Signals in Gold Aug 15, 2011: 2:17 PM CST I wanted to follow-up from the post “Lessons from Gold’s Three-Push Divergence into $1,800” from last week with an additional trading example of how to piece together the chart puzzle […]

  5. Lesson On Intraday Divergence Reversal Signals In Gold | Avid Investor Group Says:

    […] by iStock Analyst in Market on August 15, 2011 5:17 PMI wanted to follow-up from the post “Lessons from Gold’s Three-Push Divergence into $1,800” from last week with an additional trading example of how to piece together the chart puzzle […]

  6. Neha Jain Says:

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  7. Another Three Push Multi-Divergence Example from Gold | Afraid to Trade.com Blog Says:

    […] take a look at another excellent example of this important trading concept/set-up that triggered successfully at $1,800 on August 11th and just recently on August […]

  8. Another Three Push Multi-Divergence Example from Gold | Margin of Safety Says:

    […] take a look at another excellent example of this important trading concept/set-up that triggered successfully at $ 1,800 on August 11th and just recently on August […]

  9. Lesson on Intraday Divergence Reversal Signals in Gold | Margin of Safety Says:

    […] wanted to follow-up from the post “Lessons from Gold’s Three-Push Divergence into $ 1,800” from last week with an additional trading example of how to piece together the chart puzzle […]