Updating the Triangle Breakdown in Gold Dec 15

Dec 15, 2011: 12:33 PM CST

Gold prices ejected downward from their Symmetrical Triangle bigger price pattern this week, resulting in a continuation breakdown move towards expected lower targets.

Let’s take a look at the original “Symmetrical Triangle” prior update (ahead of the break) and now update what’s happened and where we are now, starting with the “Pure Price” pattern itself:

Reviewing last week’s Symmetrical Triangle Pattern description, we observed the “Midpoint Value” area at $1,735 with converging ‘triangle’ trendlines narrowing from $1,750 to $1,700.

A breakdown under the $1,700 level would trigger a ‘range expansion’ or “feedback loop” sell-off towards the $1,600 target … which is exactly what occurred, giving us a good example of a bigger-picture pattern set-up and follow-through.

This is a big lesson in planning for any outcome, and not being biased that gold “must” break higher from the triangle pattern.

Yes, the bigger picture trend structure suggested an upside continuation, but this gives us a good opportunity to review one of my favorite bits of trading wisdom:

“IF something should happen but does not, THEN it often leads to a larger than expected move in the opposite direction.”

The simple logic behind the statement refers to “Crowd Behavior,” especially with a majority expectation that is not fulfilled.  What happens instead is a series of stop-losses that trigger a “feedback loop” I like to call “Popped Stops.”

The Feedback Loop – which occurs in virtually any breakout from a consolidation pattern – occurs in part because BOTH sides of the market are engaging in the same activity for different reasons.

In this downward break from the triangle consolidation pattern, buyers were forced to sell-to-liquidate unhappily which was joined by traders (bears) who short-sold happily.  This type of logic helps understand impulse moves in price.

Let’s pull the perspective up to the Daily Chart and see where we are in the broader scope:

The triangle developed cleanly, and price broke out ahead of the apex (point where the trendlines meet), which is the classical expectation.

In any consolidation pattern, traders often do best to wait for a breakout to occur, instead of trying to predict in which direction price will break – that sort of behavior is what helps propel feedback loops or “Popped Stops” of the side that loses the price battle.

Anyway, after breaking and closing under the $1,700 key level, price impulsively traveled towards the first downside target at $1,600 … and exceeded it yesterday.

It’s very interesting that price closed firmly – for the first time since January 2009 – under the rising 200d SMA (that’s another story).

In the meantime, let’s keep focused on the $1,600 pivot and the 200d SMA which was also the swing low from the recent October sell-off.

It’s not going to look good for gold if it continues closing under $1,600, so let’s watch price structure day-by-day relative to that reference level and these recent bearish breakdowns.

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!

7 Comments

7 Responses to “Updating the Triangle Breakdown in Gold Dec 15”

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  3. Geoff Coe Says:

    informative. cool

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  5. Uae Gold Rate Says:

    Really it is great to do update of it.

  6. Quick Updating the SP500 Symmetrical Triangle into December | Afraid to Trade.com Blog Says:

    […] Updating the SP500 Symmetrical Triangle into December Dec 22, 2011: 12:11 PM CST Gold recently broke from its larger Symmetrical Triangle daily chart pattern, but the S&P 500 (Stock Market) hasn’t followed suit […]

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