Another Three Push Multi-Divergence Example from Gold

Aug 24, 2011: 9:39 AM CST

What tends to happen when gold forms an intraday “Three Push” price pattern on multiple-swing negative divergences into an overhead “Round Number” price resistance level?

Let’s 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 22nd:

Take a moment to review my original post:

Lessons from Gold’s Three-Push Divergences into $1,800

and the follow-up lesson/explanation post:

Lesson on Trading Intraday Divergence Reversal Signals in Gold.

Let’s take it step-by-step.  The main idea is that we’re combining three major chart/technical factors into a thesis/set-up:

  1. Overhead Price Resistance at a “Round Number” Reference Level (like $1,800 or $1,900)
  2. A “Three Push” common reversal Price Pattern
  3. Multiple Swing (lengthy) Negative Divergences in a Momentum Oscillator

These chart factors combine to paint a picture of “Caution” at a minimum – or a signal to take profits on short-term open positions from traders.  Odds of trend continuation tend to drop-off when lengthy negative divergences appear.

Beyond the “Caution” or “Take Profits” signal for buyers/bulls, the triple-development offers a potential low-risk, tight-stop opportunity for bears/short-sellers to initiate a new position to fade the trend or play for a short-term intraday trend reversal.

In general, only experienced traders should attempt to fade a trend at predetermined conditions like this, while new/developing traders should adopt pro-trend strategies such as retracements (like Bull/Bear Flag Patterns in a confirmed trend).

Just like the prior example from August 11th, price ran about $10 over the “Round Number” resistance price on a “Third Push” or “Third Swing” to top-off a lengthy intraday negative momentum divergence seen in the 3/10 Oscillator (but seen just as easily in a standard Rate of Change oscillator).

Short-term bullish traders should be looking to exit (or at least take partial profits/scale out) a pre-established long position into the $1,900 resistance area as these divergences developed.

The final “Get Out NOW” signal from price was on the breakdown back under $1,900 which broke a rising trendline and the 20/50 EMAs (which crossed bearishly at the same time).

There was a later exit signal on the break of another rising trendline and price support shelf at $1,880 after the 20 and 50 EMAs had been trading in a bearish position.

By the same token as the bullish exit signals, Bearish (aggressive) short-sale entry signals developed accordingly.

What resulted was a sharp sell-off on August 23rd which resulted in a new price and momentum low at $1,830.

Price retraced in a “Bear Flag” price pattern into the $1,855 level and then broke the rising “Flag” trendline at $1,850 which triggered a simple “Bear Flag Retracement” Trade which took us – as of 9:30am CST – back to the $1,800 price level.

Do take the time to learn the lessons from these examples – both the “Three Push Divergences into $1,800” and the ‘history repeating’ example/lesson of August 23rd.

Corey Rosenbloom, CMT
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1 Comment

One Response to “Another Three Push Multi-Divergence Example from Gold”

  1. Rob Says:

    Always nice to run in to more tools,Thanks for the article.