Price Reversal Strategy Gold and Crude Oil using Dollar Index Futures Correlation

– Last day in the trade room is today, Monday 13th
– Trade Room is closed until we re-open the room @ 745am on Monday January 10th, 2011

o 2nd week of the new year

– Support and Sales offices are OPEN

– Members Materials, Auto Trader, Your charts, your data, tech support team will all STILL BE WORKING.

Here are the reasons I take such a long break:

– Because ive been watching charts for almost a full year now, I want to rest, and find my passion again

o Come back in January with a few good books under my belt, some time with the family, and emotional clarity, and ready to focus for another 365 days

– Because you’re really not missing any good price action
– You’re not going to learn from the poor price action
– I challenge myself to improve my trading results

o Reflect on the previous year, use your experience to make an educated decision based on your future goals.

Our day begins the same way each morning with our morning routine, so lets check the news

08:30 Canada Q3 Capacity Utilization

11:30 US Treasury’s 3- and 6-month bill auction

There’s no US news scheduled for today, so the only major event will be the US open @ 930am EST.
Now that the news is under control, we look at the dollar index futures because its correlation gives us a great heads up on the day ahead.

Open your slower timeframe on the dollar and begin to analyze the market you see today:

– Draw trend lines from highs and lows
– Looking for wedge patterns
– Looking for price channel
– Then look for trading ranges from one day to the next and look for ‘inside trading days’

What do we see on this 21range chart of the dollar index?

– Bottom of the price channel
– Bottom of the wedge
– Bottom of the trading range INSIDE the range from last week.

o Notice we are inside the last WEEK’s trading range
o Not just an inside day from the day before, but the WHOLE WEEK BEFORE.
o Inside days = sideways and sluggish on markets we trade.

– Average true range is showing a narrowing trend, and the lower the ATR the more difficult it will be to trade today.

– Speed has been slow all morning, but we can always wait to see that increase as the day develops

We have the dollar at the lows of the 34 range price channel, and as you know, we want to buy the lows, so we expect the dollar to rise off the support levels, the lows of the price channel.

With the dollar expected to rise, lets now prepare to profit on Gold, Crude, Euro, going to fall.

So im looking for shorts on the markets we trade as the dollar is anticipated to rise.
Gold Futures:

– We have the gold futures in the middle of the larger trading range on the 55range chart
– We’re day traders, so this means we can trade 2-sided, long or short

o However, if you are a swing trader, you need use caution, trading in the middle is more dangerous

– With the dollar at the lows of its range, and the dollar expected to RISE, im looking to sell the highs of the sideways trading range on gold.

– Day traders can buy the lows and sell the highs in a sideways market, and that’s all we need to do.

– We define our sideways trading range from 1393.8 down to 1372.7 and we’re looking for the gold market to reverse and drop back into it for a short trade.

930am EST

– We’re seeing the dollar drop, making new lows and breaking the lows of the price range from late last week.

– The odd thing is that while the dollar is dropping, so is gold and crude oil
– Volume is low
– This is the Monday morning of the transitional week ahead of the holiday season
– We have NO NEWS to act as a catalyst

– The dollar is moving, but we’re seeing lack of conviction, lack of speed, and the lack of consistent correlation.

Questions:

– Too many charts, what do we look for?
– How should we trade the end of the year?

o Lower volume with less people in the markets to provide consistency

o More traders with HAIL-MARY trade ideas that are similar to the WACKY Wednesday price action

 Large, unexpected orders on the tape

o Be very careful b/c the combination of low volume, and market manipulators along with the last minute hail mary trade attempts can lead to very confusing price action and a very tough market to trade with confidence

– TRADING WITH OR WITHOUT BIG MONEY
– 3-STRIKE RULE
– 3 SIGNS OF PRICE REVERSAL


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