Price fluctuation in a specific direction is equivalent to a single unbroken price change defined as a swing. As price rises, the bars on a chart will make higher highs and lows. At some point the move up (rally) will end and price will reverse lower (break). In its simplest form, the swing trading definition of a high represents a high bar surrounded by lower highs on either side. Just the opposite applies for a low. Understanding this is the key to the definition of swing trading.
As with Elliot Wave Theory, bar charts have an innate hierarchy of swings, which define trends, corrections, and reversals. For example a swing high is more significant if it is higher than the previous and following swing highs.
In the example below the high at (d) is more significant as it has lower swing highs on either side of it (b, f). Another absolute of the swing hierarchy concept is that after every swing high there must be an offsetting swing low before there is another swing high (and vise versa). In some situations there will be no evident alternating swing.
These so called hidden swings occur when as in the example below price makes a higher high (a) followed by a lower high, and then moves to new highs before making a lower low (b).
A hidden swing then is defined as the most extreme price reached in the opposite direction of the previous swing, without violating a previous bar, before price exceeds the previous swing. There are a large number of ways in which swings can be used in technical analysis, so it is important to understand them.
Swing trading definition and identification is critical to understanding markets. They can be easy to identify. The key is to be cognizant of the fact that if you can’t find one on a chart, drill down to a lower timeframe. You will then find it.
Since the beginning of the year the gold market has put in an impressive swing higher. So is the 5 year bear market dead? I cannot say for certain. A few factors suggest it is, but there is more evidence needed to make that call.
One positive indication is the size of the 2016 rally. Since September of 2011 there have been 3 major bear market rallies; $265.40 (A,B) , $265.10 (C,D), and $253.9 (E,F). Since the December low, the price of gold has rallied $269.60. This size swing, though minimally larger, makes me think something could have changed in this market. The quick rejection of the downward outside reversal in May on the monthly chart is also a big plus.
However, there are many fundamental and technical factors that question whether this recent rise in price is the beginning of a bull run. The fact that generally all commodity prices have risen this year tends to suggest that the current price move in the gold market is just a rally from an oversold condition.
Then there are serious global uncertainties that exist which could be fueling gold’s recent rise. Southeast Asia is number one on the list. First I find it hard to believe with the huge over buildup in Chinese industrial capacity that their economic downturn is now over. In fact there are suggestions on the monthly Shanghai stock index chart that another huge down swing is possible.
However more potential downside is a two sided issue for the price of gold. If the Chinese stock market plummets lower again, some of that money would probably flow into gold, raising its price. However, as China is one of the largest consumers of the metal, continued economic strife there would eventually put a cap on demand and thus limit upside price potential.
Global Economic Outlook
Furthermore, overall global economic growth is anemic. And while almost all national Central Banks keep printing cash, the velocity of money is not responding. Therefore inflation is not taking hold. Economists call it pushing on a string. That is monetary stimulus is not producing any results, as beneficiaries to the stimulus are not investing or spending the money. They are generally shoring up their balance sheets. This is not bullish for the gold market.
The Brexit issue is also obviously on investor and speculators minds. Its possible that the uncertainty over the outcome was what caused June’s recent upsurge in the price of gold. The question is what will be the economic outcomes if Great Britan does or doesn’t exit the EU? The rally in June could simply be a red herring.
There are several technical aspects that one needs to analyze to determine if the price of gold has the potential advance to new 2011 highs. First it would be very important for price to continue to rally above June’s gains, and hold them (thus increasing the size of the 2016 upswing). Then there are several Fibonacci retracement and extension levels that would need to be breached.
First is the monthly swing from the December low to the May high. A projection off the May low of an equal size rally equates to 1454.00 on the monthly chart. Another key point is the support and resistance line at $1508.00 (G). As you can see, it has acted as a major pivot point in price. The interesting thing about that is $1510.00 (H) is also the 50% retracement level from the 2011 high and 2015 low.
My guess is that more than likely we will see an attempt to test those 3 levels. A breach above would also suggest the a new bull run has emerged. Finally the monthly 14 day ADX needs to turn higher. Those technical events would convince me that the gold market has started a new bull market.
The recent rally in crude oil has the financial media abuzz about the possibility of a significant low. If it is, that would be very important to other commodities whose prices have been slashed in the brutal bear market. That said, it is way to early to tell. A very interesting area to focus on right now is the $39.68 to $38.63 area basis the April contract. There is very good weekly resistance in this area created by the cluster of December lows (a). Just as significant is that this area also contains the 38.20% Fibonacci retracement from the October high to the February low. One should expect at least a retracement lower from here. However, if price can get above the $40.00 level, it would add more credence to the idea that a significant low has been made.
Ever wonder what it would be like to successfully trade the financial markets and achieve the monetary freedom that comes with it? More than likely you don’t even know where to start; that is until now! This book “To Be a Trader” is meant as a “travelers guide” to that quest. It is written by Paul Kogut, a professional trader of over forty years. “To Be a Trader” explains the necessary development of psychological focus, risk management skills, and how to successfully blend them into the basic principals of technical and fundamental analysis. It is meant as a holistic approach to assist the reader in developing their own individual trading plans and goals.
So how does one become a successful trader? First, explore the many insights and theories proposed in this book. Take the ones you like and that fit your personality; discard the rest. Study the ones you like further until you are confident on how they work. Then implement them into your strategic plan. “Wrap those ideas and concepts around your trading beliefs. Make them part of the Zen experience”.
Tuesday March 8th, 2016
Coon Valley author offers guide to trading success in new self-help book
COON VALLEY, Wis. — This week marks the nationwide release of author Paul M. Kogut’s new self-help book about trading, “To Be a Trader: Finding a Path to Your Trading Success.”
“To Be a Trader” is meant as a traveler’s guide to that quest. Written by a professional trader of over 40 years, this informative book explains the necessary development of psychological focus, risk management skills and how to successfully blend them into the basic principles of technical and fundamental analysis. It is meant as a holistic approach to assist the reader in developing their own individual trading plans and goals.
So how does one become a successful trader? First, explore the many insights and theories proposed in this book, then find what fits one’s personality and discard the rest. Study the ones the reader likes further until he or she is confident on how they work; then implement them into a strategic plan. Trade well and prosper in Kogut’s eye-opening book, “To Be a Trader.”
Published by Tate Publishing and Enterprises, the book is available through book stores nation wide. From the author at becomeatrader.net, the publisher at www.tatepublishing.com/bookstore, or by visiting barnesandnoble.com or amazon.com
At the age of 13, Kogut began working on the floor of the Chicago Board of Trade as a summer clerk for his father, Leon, in 1972. He has studied markets ever since. An expert in technical and fundamental analysis, he has developed over the years numerous trading systems and methods. He currently trades out of his farmhouse in rural Southwest Wisconsin. The author is also a professional fly fisherman.