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Silver Futures – A Chart Analysis

Silver Futures – A Chart Analysis
April 26
03:20 2012

Here is a 15 minute chart snapshot of Silver futures (Symbol: SI) spanning Tuesday, March 27th, 2012 to Wednesday, March 28th, 2012. This chart includes several technical indicators:

  • 8 period simple moving average (blue line)
  • 20 period simple moving average (red line)
  • 200 period simple moving average (green line)
  • Bollinger Bands (purple lines)
  • Relative Strength Index (RSI) (dotted line)
  • Volume (dark blue bars)

The Walkthrough

On this chart, we will explore how the biggest moves in the oppostie direction of the trend  come after any instrument makes a new high or a new low. This will work on any time frame  as long as the trade meets certain criteria which will be discuss later in the example. Traders should be mindful that this strategy  is more powerful when used on a 15 minute chart. The 15 minute chart is very popular amongst day traders as they need this time frame to track the strength or weakness of any trend. The 15 minute chart can also indicate the end of a trend or could serve as a warning to avoid trading when this time frame is in chop or moving in a sideways range.

In this example the market has made a new high in the first yeallow shaded area. This is the first component to this type of trade (the new high indicated by the orange bubble on the 15 minute chart). After this, the market pulls back but does not make a new high.  This failure to make a new high is also important if the trader will begin to watch for this type of setup.  Second, the  buying pressure  of the instrutment must begin to slow. This will show up on the chart as the price begins to move slower. Third, traders looking to take advantage of the short postion should be watching the price to see what area is serving as resistance. After noticing the price level that the market cannot excede, the trader can then enter a short position an set a stop loss.

The stop loss should be generous and set above the new high so the trader isn’t prematurely taken out of the trade.  Warning: All  traders taking  this trade should be prepared to hold onto this trade for a minium  of 1 hour as the market will need this time for the trade to go green.  The  second yellow shaded area  shows where the trend must continue to break in order for the trader to stay into the trade. If the market can stay underneath the 200 period simple moving average the trader should continue to hold the postion until the market can make a new low or come into major support or resistance. The ideal exit is at the bottom Bollinger Band. Lastly, the market comes into major support and begins to trade in an upward sideways  move, which indicates that the trade is over and the trader should take  profits.

The Lesson

Setups like these require the trader to understand price hesistation at the high and then patience to see the trade materialize into something great. These setups are more commonly seen around economic news. Using this strategy will help those traders who missed the big run but still desire to profit from a volatile market.

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