A Review and A Prediction (Part 2) - 2012.11.24

Hi everyone,
Let's continue the journey....

This is the same H4 chart as we saw in the last post, but I add more lines.
As we can see, gold has been closed in the crossing area of my Yellow Line with 1753.5 Resistance.

If my prediction about the market mentality is bullish and the bull power is still big, is correct, then we will have a rising price in the market opening.
But I think that will not be too big, because we have Main Uptrend Resistance at around 1758, and the Blue Resistance at around 1760.
So my best guess is gold will play around 1750 to 1758 / 1760 area in the Sydney and Tokyo session.
For a downside scenario, I think gold will not go lower than 1738, which is used to be a strong resistance area and now acting as support.


THE QUESTION
Predicting what will be happening in market opening is one thing. But trying to figure out what will happen next is another thing and more complex. We have to pay attention to many things.

1) Is it already a valid uptrend, or just another correction before gold dive back downside?
This is the key question for all traders when trying to mapping the chart before making any further positions. This is also an eternal question for me, which I always ask to myself every time gold make a new significant move.

2) If it is a valid uptrend, then until what level gold can go in this short term?
I will not ask for the long term case, or for several years ahead, because the answer is obvious.
A trader concerns about short term. Investor concerns about long term. So, since I want to discuss about trading here, then I have to evaluate everything that concerns about gold short term move.

To answer those question, I will use my favorite tools, simple and yet effective enough, The Fibonacci Retracement. (I will not explain about Fibonacci, please ask uncle Google to learn more about it).
I just want to show you how I use it in my chart.
As we know, the most important lines in Fibo is 23.6, 38.2, 50 and 61.8 percents.
Usually those lines create some good enough resistance function for continuation of the price in the trend or function as a confirmation of trend reversal. Not always, but often. Remember, this is the market. No technical stuff will be 100% exact. So is fibonacci, but I like to use it because its simplicity and accuracy is high enough.

Now, let's find the answer for question number 1.

From this Daily Chart, we can see that gold has been moving from the lowest point at 1527 to the highest at 1795 and then have correction back to 1672.5. After that the price is moving up again. Is it confirmed for continuation?

If we see from fibo, the price at this moment has exceeded the 23.6 fibo level, which meaning for me as a confirmation of the LONG TERM UPTREND CONTINUATION.

Now, try to see from the H4 Chart below.

 

 From the H4 Chart, we can also see that the price at the moment has broken the 61.8 Fibo level (different fibo than daily above), which also means it is almost confirmed as the MEDIUM TERM DOWNTREND REVERSAL (downtrend from 1795 on Oct 5 to 1672 on Nov 5, now it is almost certain making a reversal to the upside)

My conclusion: The confirmations from H4 and D1 from fibonacci retracement is convincing enough that we are seeing an uptrend. Of course, there is never 100% exact for the market, so there is always still a chance that it might be wrong. What do you believe? Do you believe we are in the uptrend at this moment?

Now let's move forward to the final question.
From all of the important level of fibo, I used to give special attention to 38.2 and 50 level that often act as a significant R/S level. Please notice my green arrow in the daily chart and 4H chart above.
Can you see that the 50% fibo act as strong R/S level?
Just take a look of these more charts below:

50% Level of Fibonacci Retracement as the support in M5 Chart

50% Level of Fibonacci Retracement as the Support and also Resistance in M5 Chart

50% Level of Fibonacci Retracement as the Support in H4 Chart

50% Level of Fibonacci Retracement as the Resistance in D1 Chart

Just notice how the 50% Fibonacci level so often be found as the support or the resistance in the chart. Just try to draw by yourself in any random trend and you'll see what I mean.
Now, if we already agree that 50% level of fibo is so often show up in the chart, why don't we use it to predict how much gold will go this time.
But in order not to over predict and get the minimum price level instead of the maximum price, I will use the smaller level of fibonacci, that is 38,2%, not 50% in the prediction.

Assuming that you believe we are most likely in the uptrend and gold will go higher until price level H and then retrace back to the resistance at price level R. Now let's define R level first.

Now, look at the steps below:

Step 1: Suppose that I take 1738 as the most strongest support for this short time when retracement happen later after this next uptrend ends. Just draw that support on the chart. (I use 4H chart)

Step 2: Draw your Fibonacci Retracement so that the 38.2% level is overlapping with your Resistance.
Step 3: Take the price figure at 0% level of your Fibo as the result of the  your prediction. In this case, it is at 1778.30. That means that we are expecting the gold to go to 1778 area to make this uptrend completed and then has a correction down to 1738. We're doing that using a technical tool that historically proven to be right many times. So, it is not a random prediction.

See, it is not too difficult to make a prediction using a simple tool as Fibonacci Retracement, right? :D
Now, you look like a Pro, don't you? LOL

Ok, let's go back to the business. It's not finish yet.
In the sample above I use 38.2% level instead of 50%. If we use the 50%, we will get the higher result.
In this case, if you and I believe that 1738 is the most likely to be the support when gold has retrace back later after this uptrend happen, then gold must go to more than 1800 this time to have 1738 as the support if we use 50% level of fibo in this prediction.
It is up to you what level of Fibo to use. What I share in this post is the most simplest technique yet effective.

Overall conclusion of my insight for gold at short term:
Yes, I believe we are in the uptrend.
It is big possibility we will see the next attempt from gold to break the 2012 highest before the years end.

Disclaimer:
This is the longest post I ever make just to share what I'm doing in predicting the market with hope it will help many trader especially newbies out there.
Always keep in mind, I AM NOT a professional adviser, nor a true god. I make mistake along the way, and that is the way I learn.
So, please don't take everything RAW. Use your own logic to analyze before taking any position.
Have a strict money and risk management for your own sake.

Good luck everyone. Have a blessed day...

GG - 2012.11.25