Duxon's Journal on Trading Metals

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THURSDAY | MAY 23, 2024

Last Saturday, I was of the opinion that gold's critical measures where 4½ hours, 3 hours and 21 minutes; and that silver's were 4½ hours, 2 hours and 1 hour.

However, here is my current thinking (on which I based the four trades pictured below)...

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In general, you should be trading gold in sync with the 4½-hour price flow, but at a more granular level, you want to be trading in the direction of the slope of the 26-minute baseline, as confirmed by its 60-minute cousin.

The maximum 4½-hour acceleration is calculated at 1.25% deviation.

And yet, a slightly different, but nonetheless valid, point of view is that you're generally looking to trade in the direction of the slope of the somewhat lagging 43-minute price flow, but more immediately, in the direction of the slope of the overall directional tendency of the frequently fluctuating four-minute price flow channel at 0.03% deviation, as confirmed by the seven-minute and 8½-minute baselines—especially if they are in sync with the 20-minute moving average.

In that the second perspective is more precise, I suspect that it is the better way to go. So, go back and see what happens if/after you try to meld/reconcile these two sets of measures on one chart—after translating BOTH of them to the SAME time frame.

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Trade silver in the direction of the slope of the six-minute price flow channel at 0.07% deviation. This is confirmed by the 26-minute baseline. Moreover, the 13-minute price flow channel at 0.20% deviation helps convey the "overall gist" of silver's intraday directional tendency.

(Maximum acceleration is calculated at the 1% deviation level of the 13-minute price range envelope.)

And yet, a slightly different, but nonetheless valid, point of view is that you want the 8½-minute baseline to be flowing in alignment with the upper band of an upward sloping 14½-minute price flow channel at 0.1% deviation to trigger your entering a long position; or in alignment with the lower band of a downward sloping 14½-minute price flow channel at 0.1% deviation to trigger your entering a short position.

So then, go back and see what you think if you compare and contrast these two chart configurations side by side.

 

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Go back and see what happens if/after you try to meld/reconcile these two sets of measures on one chart—after translating BOTH of them to the SAME time frame.

So then, the 43-, 51- and 60-minute baselines all serve essentially the same function...suggesting gold's ultimate or eventual destination at the intraday level. The 51-minute price range envelope also offers a supplemental statistical support/resistance level in the neighborhood of 0.80% deviation (in addition to the 4½-hour price range envelope at 1.25% deviation).

The overall directional tendency of the frequently fluctuating four-minute price flow channel at 0.03% deviation in tandem with the seven- and 8½-minute baselines are your "money measures," as confirmed by the only slightly lagging 20-minute baseline.

(The 26-minute measure is plotted on the chart as a price flow channel at 0.20% deviation to help the eye follow the general flow of price action, not to mention serving as a reasonable suggestion for possible stop-loss levels.)

 

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So then, go back and see what you think if you compare and contrast these two chart configurations side by side.

I'll get back to silver next, but natural gas is more interesting AND more complex. So, I'm going to go out of order here and write down my thoughts on the fuel while they're still fresh in my mind...


Natural gas is sort of a problematic asset.

Initially, it would seem that entering long positions whenever candlesticks are painting above the ten-minute baseline, and the ten-minute baseline is positioned above the 20-minute moving average; or entering short positions whenever candlesticks are painting below the ten-minute baseline, and the ten-minute baseline is positioned below the 20-minute moving average, would work out just great.

But unfortunately, due to the often times spasmodic nature of natural gas' price action, there are many instances in which the fuel will suddenly swing (spike or plunge) "wildly" in the exact opposite direction of the trajectory on which the ten- and 20-minute moving averages are progressing—even though these two measures have absolutely no intention whatsoever of reversing direction—meaning that entering a position corresponding to the positional location of price would result in a massive loss, with candlesticks crossing back over to the "expected/logical" side of the intraday baselines in very short order.

Moreover, at times, price will quickly surge all the way to the 3.5% deviation level of the 20-minute price range envelope headed in the anticipated direction, offering a potential opportunity to lock in massive gains, but then just as quickly retreat all the way back to the ten-minute baseline, or occasionally, all the way back to the 20-minute mean itself, potentially leaving a huge pile of money on the table!

This would suggest being ready to just about instantly take profits whenever price enters the 2% to 3.5% deviation level of the 20-minute price range. The only problem is that it's only sometimes that natural gas moves in a series of fits and starts, evidencing the kind of spasmodic behavior just described, as it did in the right-hand example pictured below. However, at other times it doesn’t, as was the case during the interval of time represented on the left.

So then...when should you take profit and reversed direction at the 2% to 3.5% deviation level—and when should you maintain course?

Well, for one thing, you should always take profit at 2% to 3.5% deviation level as soon as you see a reversal in the "instantaneous" moving average AND it is confirmed by the two-minute baseline.

Second, you should reenter your position as soon as price comes out of its pullback, provided there has been no reversal and/or crossover of the 20-minute baseline. On the other hand, once the 20-minute baseline turns around, that's when you can begin considering trades in the opposite direction.

NOTE THAT THIS HAS NOTHING TO DO WITH YOUR CONTENTION ON MAY 18TH THAT 2¼ HOURS and 36 HOURS CONSTITUTED NATURAL GAS' MOST IMPORTANT MEASURES.

Nonetheless, if you pull back a bit, you'll see that the "ruling measure" as to whether this fuel is ultimately headed higher or lower IS the 36-hour price flow, with the 4½-hour baseline (rather than 2¼ hours) serving as the intermediate arbiter of bullish or bearish bias or sentiment.

This means that the most profitable positions will probably be entered when the 4½-hour baseline reverses direction from a course opposed to the slope of the 36-hour price flow to one that is aligned with it.

Other than that, your best bet is to perhaps enter positions as natural gas reverses direction at or beyond the 2¼-hour price flow channel at 1.20% deviation (so then, it seems that THIS is where the 2¼-hour measure comes into play) especially if this is ALSO in the vicinity of the 2% to 3.5% deviation level of the 20-minute channel.


SILVER

This metal looks to be pretty simple. Last Saturday you wrote that 4½ hours, two hours and one hour were its most important measures, but you can forget the first two (at least for day trading purposes).

The arbiter of silver's ultimate/eventual intraday destination is suggested by the hourly price flow. Nonetheless, its "money measure" is the 8½ hour baseline. Basically, you're looking to be long whenever price action is taking place above it, especially if it is sloping upward; and short whenever price action is taking place below it, especially if it is angled downward.

All other details are essentially auxiliary.


CRUDE OIL

Forget what you wrote on Saturday about six hours and 1½ hours being most important, at least in terms of day trading. Here, the 30-minute baseline informs you as to the direction in which you ultimately want to be headed, with the 20-minute baseline serving as an intermediate measure, and the six-minute price range envelope at 0.18% deviation and the 13-minute price flow channel with the same setting tracking the immediate/actionable trend.

 

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HIGH-PROBABILITY TRADES

Use the two lower-panel indicators with the settings pictured below as objective criteria for when entering a long or short gold position is virtually guaranteed to result in a profitable outcome...

Here are the settings for natural gas...

 

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Crude oil uses only one lower-panel indicator, but it must be confirmed by indicators in the main chart, and you have to have solid criteria for exiting with profit in a timely fashion:

 

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HIGH-PROBABILITY TRADES

Unlike gold, crude oil and natural gas, rather than look for guidance from a lower panel histogram when seeking potential trades virtually guaranteed to result in profitable outcomes, the strategy with silver is to enter a long or short position as price exits the pullback associated with (following) a given setup alert (buy or sell signal/arrow), as highlighted by the red and green circles...

 

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The arbiter of silver's ultimate/eventual intraday destination is suggested by the hourly price flow. Nonetheless, its "money measure" is the 8½ hour baseline. Basically, you're looking to be long whenever price action is taking place above it, especially if it is sloping upward; and short whenever price action is taking place below it, especially if it is angled downward.

CORRECTION:
The above directions should have referenced an 8½-minute baseline and NOT 8½ hours!

 

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With crude oil, every hundredth of the price is worth a dollar.

 

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With crude oil, every hundredth of the price is worth a dollar.

With natural gas, every thousandth of the price is worth a dollar.

2.781

 

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Gold sold off on the headline that China halted reserves buying after an 18-month stretch. In my opinion, this has a lot more to do with the prevailing market narrative than a real fundamental reason. In fact, we've been hearing lots of talk about gold surging because of China and Russia buying, so the risk of that flow stopping triggered a negative reaction.

I would also point out that the selloff could have been exacerbated by algos and the price is now near the lower bound of the average daily range. Generally, the price doesn't extend much beyond these levels unless there's a very strong catalyst. Therefore, this might be a good opportunity for dip-buyers to fade the reaction.

In the bigger picture, gold is inversely correlated with real yields as it "competes" with bonds. The opportunity cost of holding gold rises when real yields rise and falls when real yields fall. Therefore, the inverse relationship. You can see it in the chart below.

In the past two years people pointed out to the decoupling of the correlation, but they never really decoupled. It's the magnitude that changed. In fact, when real yields have been rising, gold has been falling much less, and when real yields have been falling, gold has been rising much faster.

I've never really bought the narrative that gold has been rising due to China. If you look at the chart below which shows China's gold reserves vs. gold, you will notice that gold has been rising in the past without China buying, and has been falling with China buying a lot. The main reason for the change in the magnitude might be related to the US fiscal profligacy.