Update on Silver Trade

Just to update the Silver trade I took previously. I trailed my stop below a H1 DZ and it got hit just now for a +0.5R. The fact that price failed to make a new high and the possibility of it forming a H4 head and shoulders now is giving cause to potential bearishness. Side note: I'll be very cautious of trading in the next two days due to ECB conference on Thurs and NFP on Fri.

Silver

Pending Buy Order On Silver

Silver Daily

Based on the strategy described in my previous post I have a pending buy order on silver at a Rally Base Rally (RBR) demand zone. The upward momentum is obvious from the strong bull bars. I also believe that price would want to test the weekly S/R flip (my target) and that should act as a magnet to pull price. This trade if successful would net around 2.8R. As it is based on the daily time frame, the challenge for me would be to avoid being shaken out by lower time frame movements, something which I'm pretty prone to. Hope it works out!

Silver Short Trade - Barely Escaped

Silver 1H

Refer to my previous post on Silver. So I did short Silver on a breakdown, but man the moment I did it and zoomed in to the lower TF charts I knew it could be a mistake. Refer to the 1H chart above, while the demand zone has already been spiked, it doesn't mean that all the demand (buy orders) from that zone has been removed. Really strong zones can sometimes reject prices a couple of times. I was lucky on this trade because price formed a very obvious bottoming pattern on the 5 mins chart and hence clued me in to a pending reversal. I managed to escape with a meagre 0.05R profit.

I am posting this because I learned a few things from this trade.

1. When price is moving sharply towards a demand/supply zone, DO NOT chase the move!!! Just because a zone is no longer fresh doesn't mean it will not hold! A sharp move towards a zone is usually a trap by the professionals to suck in retailers and fill their orders. In this case you can really see how the pros happily accumulate at the demand zone. Once they've filled sufficient buy orders, price shot up like a rocket. You can really see this on tonnes of charts yesterday (Gold, Crude, NZDUSD, EURUSD, GBPUSD etc).


2. The 5 mins basing pattern in the inset above is also ingrained deeper in my mind. I've seen it a couple of times; I don't know what to call this pattern, neither do I see it in books, but you can really observe the decreasing momentum even as price was attempting to make new lows. This would appear as a bullish divergence on indicators. Price was also slowly rounding up, and in fact there was compression on the upside (price kept spiking up to remove supply in preparation for the big move up). These factors led me to close the trade for whatever profits I had. Indeed my stop loss was still far and the trade could still work out in my favor, but I hate draw downs and the risk over the week ends was not worth it.

Compression On Silver Chart

Silver 4H

Silver is showing an excellent example of Compression. I blogged about it in the previous post. Notice that price has been spiking up and down to remove the prior demand (Orange circles) and supply (White circles). Unfortunately I'm unable to tell which direction it'll break in, but I'm pretty sure that when price breaks on either side it'll hit either the Supply or Demand zone very quickly because there is nothing in the way to hold price back. Due to the recent sharp drop, I'm inclined to think that price is bear flagging (look at daily chart for a clearer view of the flag/pennant), and as such will short Silver if price breaks the uptrend line with a strong bearish candle. The first TP will be the Demand zone below. If it breaks up instead, I'll pass on the trade because I don't intend to fight such a strong move down.

I just want to add that Compression is not price consolidating tightly, nor has trend lines anything to do with it. I only added the trend lines in for visual clarity. Compression is about price making a conscious effort to remove prior demand/supply, it can appear spiky or squeezed. The key to a good compression is that there is a clear path without trouble areas to the next demand or supply zone.