The Gold GLD Trendline Kiss Trade Example

Sep 24, 2013: 2:08 PM CST

When playing a breakout trading opportunity, a trader must be aware of the possibility of a “Kiss” outcome where price retraces directly back to the trendline only to continue the breakout.

There’s a couple of trading lessons we can learn from Gold’s recent “Breakout and Kiss” Outcome, so let’s take a look at what insights we can glean for future examples like this.

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A simple zoomed-in hourly chart of the GLD (Gold’s leading ETF) shows an initial gap-down event on September 12th that broke a short-term rising trendline pattern which we can see clearly on the chart of Gold Futures (@GC) below:

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The yellow rising trendline began at the start of July 2013 and continued effectively until the recent breakdown.

A “Measured Move” or clear Bull Flag (blue and black line) occurred during the development of what can also be called a “Rising Parallel Trendline Channel” price pattern.

Nevertheless, after the trendline and pattern breakdown (breakout), gold prices completed a stellar retracement back to the underside of the dominant trendline which created a “Make or Break” tradable moment.

Let’s actually discuss this “surprise retracement” up – fueled by the Federal Reserve announcement that QE3 will continue indefinitely – both from a breakout trader’s perspective and a trader looking to establish a position (or trade) in gold at this time.

From the breakdown trader’s perspective, the sharp upside rally was definitely an unwelcome real-time development that may have triggered a resting or trailed stop-loss order.

Keep in mind that the rally developed off the $1,300 key price level, so some traders may have used this target-touch as a profitable exit point.

If not, then traders had the decision to “hold and hope” through the retracement, placing a stop above the upper trendline (‘hoping’ for a successful “Kiss” outcome).

Ultimately price did hold (reverse against) the upper trendline, making the wider stop strategy successful, but my assumption is that many traders covered short-sold positions on the way up to the rising trendline.

This was perhaps a welcome development for traders who missed the initial breakout.  Retests or a return to a breakout level (or trendline) offer low-risk entry opportunities with a stop placed just above the trendline from which price broke.

Gold treated traders to reversal candles (upper shadows) into the critical “Make or Break” trendline level into $1,375 for the futures or $132.50 for the GLD ETF.

Being at a “Make or Break” level means that gold prices will either “kiss and continue” (touch then trade lower to continue the breakout) or “break and rally” which would simply trigger a popped stops or short-squeeze type of upside breakout potential trade for aggressive traders.

Again, stops would be placed in this case above $1,380 per ounce preferably with a downside target toward the $1,300 level again – or lower.

We can see an even broader picture as captured on the Daily Chart which made the $132 region critical:

Gold GLD Trendline Breakout Daily Chart Technical Analysis trading concepts

Not only was the $132.50 level the “Kiss” of a rising trendline from which price broke, but it was also the polarity level or prior support region from April and May 2013.

As traders, we tend to look for these important price inflection or “Make or Break” levels to plan our trades and game-plans for trading strategies.

We don’t always predict the outcome of an event, but structure our trade such that IF price does react lower from a confluence resistance area, THEN we can participate in the downside action with a relatively small and defined stop-loss.

In general, if you miss (or prefer not to trade) an initial breakout event, keep studying the price for one more entry opportunity at the “Kiss” point or first reaction back to a breakout level or trendline.

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Corey Rosenbloom, CMT
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