High Probability Trading Strategies

Most of us trade strictly by the technicals meaning all of our analysis and trade decisions are made by the “technical” position of the market. There are lots of potential technical factors. In High Probability Trading Strategies I teach about the momentum, time, price and pattern factors I have found useful. The idea is to identify the probable technical position of a market as it progresses and whether it is in a probable trend continuation or at or near a probable trend reversal position.

However, it is useful to at least be aware of the potential fundamental and psychological market position, especially if a market is making an extreme of the trend and either a panic, speculative blow-off or liquidation. Once panic buying or selling begins, we know it is usually the last phase of a trend but it is very difficult to project and identify the final reversal by the technical position.

Gold is a very good example. Just a few weeks ago, gold broke above the 2008-2009 highs on the fifth attempt. Gann’s rule of four which I’ve written about many times in the past and did so in a special report for subscribers several weeks ago suggests on the four (in this case fifth test) of a price level, a major decision is made. A breakaway failure usually results in a major reversal and decline. A successful breakout usually results in the acceleration of the trend. The later is what has happened with gold in recent weeks.

This places gold in the third and what should be the final phase of the bull trend going back to the 1999 low. In a speculative, panic buying blow-off, a market usually blows through many technical projections for a final top. Gold is likely to go further and longer this time than typical projections suggest.
Rather than forecasting the final top, it is more reliable to identify what gold could do to signal a top is complete. Last week (WE Dec. 4), gold made a wide, range bearish reversal week with a high right at the 162% Ext Time AND Price retracements, followed by $48 decline on Friday, Dec. 4. Is the final gold top? I have no idea but what I do know is gold reached a projected time and price target for a high which may turn out to only be a temporary high.

Also, what I do know is if gold should decline below the range of the 2008-2009 series of highs at 987 (futures continuous contract), it would be a very strong technical and pattern signal the bull market high is complete, not just for months but potentially for years to come. That level is a long way below the current price level (almost $200). At this point in time, it is the best I can do to identify a bull market top. Until and unless a decline below $987 is made, the assumption is the bull market is intact and gold will continue it’s speculative and panic buying.

It is also important to be aware that an overwhelming bullish and optimistic attitude is a condition for a top. You should expect to continue to see most gold commentary very bullish. If your non-trading professional friends and neighbors are talking about buying gold, you know that gold is in the final phase of the bull market and that phase will continue until the last gold purchasing dollar has been spent. And, when the end comes, it will be a brutal reversal. However, the panic is on and the upside could go beyond any technical target.

The breakout to new highs in gold has surprised me. But so did the last 2-3 speculative years in real estate. What will not surprise me will be the inevitable end result. A dramatic reversal with panic liquidation. The clock is ticking for the gold bull market.