The battle of the tramlines

With gold throwing up a whole series of highs and lows, John C Burford draws in several tramlines to contain the market action. So, which way now for gold?

In recentposts on gold, I have shown how you can use the Fibonacci retrace levels combined with tramlines to plan many excellent trades. And since my last gold post on 6 February, there have been even more offerings!

Recall the hourly chart (below)from 6 February showing excellent tramlines.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

I based the latest long entry at the $1,660 area as it came down to the lower tramline.

A move back up the resistance zone (pink bar) was an opportunity to take profit.

Advertisement - Article continues below

The upper tramline was missed, which is an early indication that the market was not strong enough to sustain the rally for much longer. This was likely to bea relief rally in an ongoing bear move.


(Click on the chart for a larger version)

A decisive break of the lower tramline would confirm this view.

Naturally, if I were still holding my long trade, I would be placing a protective stop at break-even.

Spiked out

So let's see how the market developed:


(Click on the chart for a larger version)

Advertisement - Article continues below

Note that my lower tramline parallel to the upper one, of course passes right through the major low of the 4 January (purple arrow). This confirms I have a reliable pair of lines.

As I suspected, the rally did not last. On 7 February the market broke the lower tramline in a nasty spike and promptly recovered to move inside the trading channel.

As I never tire of saying, the gold market is full of spikes that can catch you out, so this event was not unexpected.

If you had placed a short order just underneath the tramline you would have been whipsawed. But don't think they' are against you every trader gets spiked occasionally.

The only advice I can offer is to keep watching for weakness, as this spike is a signal that the market probably wants to move lower.

A more secure entry point is the area of the pink bar, but you would be giving up a lot of potential profit.

Advertisement - Article continues below

Let's go back to the daily chart for perspective:


(Click on the chart for a larger version)

I can now re-draw my tramlines slightly to include the recent highs on the upper tramline.

This week saw a break of the minor low (pink bar), and this indicates the market's next directionis probablydown.

If the tramlines are still operating, the next target is on or near the lower tramline in the region of the blue bar under $1,600.

Advertisement - Article continues below

Battle of the tramlines

Let's now go back to the hourly chart for clues as to the near-term direction:


(Click on the chart for a larger version)

Right on cue, the decline stopped at the third tramline with an overshoot.

Having hit a tramline, this is the moment of truth.

A resumption of the decline would propel the market towards my target, while a relief rally here would run into considerable overhead resistance.

So the odds favour a test at least of yesterday's $1,640 lows.

Advertisement - Article continues below

Now I have a series of lower highs, can I draw in a down-sloping tramline pair?


(Click on the chart for a larger version)

I certainly can! I do like the lower line, as it catches both major lows.

Now, this throws up an interesting question. If the new (red) tramlines take precedence, the target is near the upper red line in the blue zone (or slightly to the right) around $1,670.

So, this is a battle of the tramlines!

The near-term trend is down and so this has the edge, so far.

Advertisement - Article continues below

But with trader sentiment having taken a big knock in recent weeks professionals' bullish sentiment dropped to 10% I am notruling the rally scenario out.

All of this means I am on the sidelines, watching for another trading opportunity.

If you're a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

The essentials of tramline trading Advanced tramline trading An introduction to Elliott wave theory Advanced trading with Elliott waves Trading with Fibonacci levels Trading with 'momentum' Putting it all together

Don't miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here . If you have any queries regarding MoneyWeek Trader, please contact us here.



Spread betting

Boeing's share price plummets: here's how to play it

Boeing shares have fallen by a third this year. But there could be worse to come. Matthew Partridge explains how traders should play it
10 Feb 2020
Share tips

How my 2019 spreadbetting tips fared

Matthew Partridge reviews performance of his 2019 spreadbetting tips. This year’s winners include Bellway, JD Sports and Taylor Wimpey.
17 Dec 2019
Spread betting

Betting on politics: some safe Labour bets

Matthew Partridge outlines a few flutters on what should be safe Labour seats in the general election.
10 Dec 2019
Spread betting

DS Smith will deliver: here's how to play the share price

Packaging group DS Smith is profiting from the online retail boom. Matthew Partridge explains how traders can play the share price.
3 Dec 2019

Most Popular

UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020

Money Minute Friday 14 February: The latest from RBS, Britain's state-owned bank

Today's Money Minute previews results from RBS – Britain’s state-owned bank – and from pharma giant AstraZeneca.
14 Feb 2020

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019