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How To Trade Gold's Triangle Now

(Kitco News) - Aug. 15 – It's August. The financial system didn't collapse post-Brexit. Wall Street traders are vacationing in the Hamptons. And, the gold trade is a snore right now.

Traders who like to study their charts and identify patterns may have noticed a developing "Triangle" on the daily gold futures chart. Here's what that means.

Technical analysis 101: Triangles are generally "continuation" patterns. That simply means that when a trend pauses, one of the chart formations that can develop is the so-called triangle pattern. Once the market is done coiling –the previous trend (in this case – rising prices) generally continues.

There are 3 types of triangles:

  • Ascending
  • Descending
  • Symmetrical

What is gold forming now? A classic symmetrical triangle is unfolding. See Figure 1 below. This occurs as a market begins to coil or trade sideways within narrower and narrower ranges. There are four points to the triangle, labeled 1, 2, 3 4. The upper trendline stands as resistance and the first breakout point.

Good to know. There are several important technical points for traders to remember about triangle formations.

  • The clock is ticking. There is a time limit for triangles to resolve. Check out the apex (or where the two lines meet). The general rule is that the market should post a breakout in the direction of the prior trend roughly about 2/3-3/4 of the distance to the apex. So, this pattern still has some time.

  • Triangles offer measured move targets. Technical traders can determine an upside target from the current potential triangle pattern. Measure the height of the triangle (at its widest point) and apply that distance to the breakout point. (Measure the distance between points 2 and the lower trendline = about $68.

  • Doing the math. The breakout point is the upper triangle trendline – at about $1,369.50 today. If gold bulls busted through the triangle trendline on Monday – technical traders could add $68 to the $1,369.50 breakout level to calculate the upside target.

Patience is needed. As with most things in life –patience is needed as the triangle develops. As of Monday morning it has not been confirmed yet. But, the set-up is there. Short-term traders sometimes attempt to play the swings within the triangle (buy near the lower end, sell near the upper end) –but you must be nimble and disciplined for this approach.

In the meantime: Plan your trades and when the opportunity arises, trade your plan.

Looking for more charting fun and insights? Check out this story >>> Gold Traders: Why You Need To Watch Treasury Yields Now

By Kira Brecht, Kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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