Closing the Gaps in Gold - Part 2

Introduction

We have been picking the bottoms in each swing cycle of GLD, with precision and at very low risk, so far successfully, with a simple tool which combines volume analysis and gaps. This is a follow up to previous article, and an opportune time to prepare for the next bottom while most traders are only looking up.

gap A - a breakaway gap on huge volume was filled four months later, at much lower volume thus providing solid support. We bought that filler and the trade was profitable.

gap B - again, in early June, shortly after we bought and another breakaway gap on huge volume, filled a few weeks later at lower volume again, and we bought that filler also, another profitable trade.

gap C - the Katrina gap, this breakaway gap was on above average volume, but much less than both gap A and B, and I'm surprised it has gone up as much as it has on shaky ground. If gap C is filled at a future date at lower volume, then we will be jumping on it like we have before. If it is filled at higher volume, then it probably may not provide support and prices could drop to and test the 200ema. This is what we will be watching.

In the meantime, subscribers have been alerted on 9/26 to a potential bounce, which we got, but at this level, it is alright for aggressive traders to scalp a quick profit, but not suitable for the intermediate term traders.

Summary

Current euphoric sentiment among gold traders is understandable, and very well justifiable. Positive sentiment amid positive price action is natural, and not a contrarian play. However, trading is all about risk and reward. Aggressive traders can take advantage of the current 2% risk, using S (support) as stop should prices close below. And for the conservative traders, waiting for the gap C to be filled would be a more prudent alternative.

Jack Chan at www.traderscorporation.com

29 September 2005