first majestic silver

Picking A Top in Gold

Technical Analyst & Editor
January 20, 2006

When gold fell 10% in five sessions in Dec, top pickers were sure that was it, gold was going down to $420. On Wed this week, gold fell $10 and some of these top pickers were back, may be $500 this time they said. Folks, in trading and investing, there is no need to guess what the markets will do, as a technician myself, I must admit that technical analysis is nothing more than an educated guess, it has its limitations.

Fact - since bottoming at $255 five years ago, anyone who has tried to pick a top has failed, including yours truly; the failure rate is 100%. Fact - in the same period, anyone who has tried to pick a bottom to buy gold, has succeeded; the success rate is 100%.

Folks, we cannot argue with facts, and certainly should not argue with success. There is only one way to play gold: pick a bottom (an entry point) and ride it till its over. So, how do you pick an entry point? This is where technical analysis comes in. We do not use TA to predict and forecast the markets, we use TA to find entry points and exit points to maximize profits and to minimize risk.

Our breakout model identifies the major entry points. Despite gold and gold stocks are heavily overbought according to others, our model shows plenty of upside left.

Our investor's model confirmed a major buy signal, and investors shall now stay invested until a major sell signal, which could be months or years away. My suggestion? Take up fishing or golf, it will take your mind off the daily fluctuations and away from quote screens.

Our trader's model is on an IP1 after the buy signal in Nov, which is a "buy and hold" mode for traders who normally swing trade the ups and downs. Partial profits can be taken on a TLB (trendline break) of support, and re-enter on a TLB of resistance. This allows traders to bank some profits while having an opportunity to hit a homerun which they normally do not by trading the short term.

Summary

The current bull market in gold is perfectly set up to whipsaw those who try to outsmart the market. Everyone knows the market is overbought, and as soon as it drops 3 to 4% one day, traders rush to exit, only to see the market bounces back the next day recapturing all of the loss and more. These folks are now out of the market and when prices continue to move up, these sidelined capital eventually give up and buy back, thus providing more fuel for the rally. So, without a crystal ball, how do we know when the real top is in? Without sounding pompous, I believe that is a wrong question. That is something we don't need to know ahead of its time.

Investors follow the investor's model, and traders follow the trader's model. And if you are like me, who is fortunate enough to have a separate investment and trading account, you keep busy by observing both models. Keep it simple, and follow the markets.

 

Jack Chan at www.traderscorporation.com

20 January 2006

Jack Chan is the editor of Simply Profits, established in 2006. Chan bought his first mining stock, Hoko Exploration, in 1979, and has been active in the markets for the past 37 years. Technical analysis has helped him filter out the noise and focus on the when, and leave the why to the fundamental analysts. His proprietary trading models have enabled him to identify the NASDAQ top in 2000, the new gold bull market in 2001, the stock market top in 2007, and the US dollar bottom in 2011.


The 1849 Gold Rush sped up California's admission to the Union as the 31st state in that year.
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