Profitable gold and silver – missed USD CAD

A good week with profitable trades in gold and silver. The week did come with a small loss and missed an opportunity in the currency pairing USD CAD. Also, we were out of the money for much of the week in crude oil only to grab a brief break-even buyback. Overall, a good week.

Silver daily chart: each bar represents one day’s worth of trading. A black bar means the price closed lower than the open. Each candle shows the open and close price and the wick (either top or bottom) shows how high or how low the price went between the open and close times.

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We shorted silver at the red arrow, and we bought back that short at the green arrow. Just over 80 pips of profit for us; a pip is the smallest upwards or downwards movement. (In stocks and shares it is called a tick.)

Gold daily chart:

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We went short at the red arrow and for a profit at the green arrow. Gold trades less than silver per ounce and therefore our gold movement this week represented only 30 pips. Offset, however, by the trader’s equation: based on probability, our profit target, how far away our stop is and the representative amount we’re prepared to lose.

USD CAD daily chart:

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Over the last few weeks we went long at the larger green arrow and took our profits at the larger red arrow.  We went long again a few days later at the smaller green arrow only to be stopped out of the trade (within a couple of pips!) at the smaller red arrow for a small loss. I then missed the subsequent move up. That is trading. Did I set my exit stop at the wrong place? Maybe. Hindsight is a wonderful thing, and a few more pips below the moving average would have been sensible. But my overall judgement was correct, in that the price was going to go up – and I take confidence from that.

Crude oil daily chart:

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My best trade of the week without making any profit. Let me explain. We entered short at the red arrow and were out of the money all week to the tune of 200 pips at one point. We bought back our short at break-even price at the green arrow. Best trade because although we were out of the money we did not reach our stop position and we managed a break-even price. Ready for the next one!

Copper, Gold, Silver, Crude Oil and USD/CAD this week

Copper has had an intense week and finished high. Silver, in particular, has spiked up. Gold also increased but ended the week more or less even. Crude oil has finished the week reasonably strong. USD/CAD is still some way from turning up and will need careful management.

Here they are in slightly more detail:

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My premise on Copper has changed. Copper, I feel, is some way from a big turn down. I would consider a small increase in price before a drop to our low two weeks previously – and then a possible climb. We will look for the best price to exit our copper trade.

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Silver has had a dramatic couple of weeks. Two strong weekly moves up taking silver from the one-year trend line to the, higher, 10-year trend line; indeed, the price of silver bounced precisely off this line – marked with a circle. Always challenging to short when everyone else is long. But that is what we did. Of importance, and supporting our case, the COT for silver shows commercials at an 8-year record with the number of shorts compared to longs. Hold onto your hat!

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Gold has not been as dramatic as silver. Up in price all week, gold finished low for the week supporting our prediction of gold progressing further down in price over the coming weeks.

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I’m a supporter of a drop in price again in crude oil, but it may take its time. Price was possibly getting to somewhere marked by the red circle. For now, we remain on the sidelines.

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USD/CAD price mirrors that of crude oil. Therefore, a trade on both is double the risk and significant consideration. As with crude oil short, it is early days to consider USD/CAD long. A turn somewhere in the green box, however, is a good probability. But risk-reward is excellent when we catch a trade early. Probability is the other major player in the trader’s equation; moreover, proper management of early trades is essential.

Achieving excellent trade entries helps a lot

How our trades have progressed this week:

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We are short Gold. We went short at the red arrows. That is, we expect the price to go down. If Gold goes down in price, we gain. It is always tricky to find the best price and often it is merely ‘good is good enough’. But our first take here seemed excellent. Price this week had risen giving us a chance to add to our short. Again, this seems to be at a near top. We now have a lower high (the difference in height between the first and second arrow) and, therefore, the possibility of a continued drop in the price of gold, at least for a few weeks.

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We went long USD/CAD at the blue arrow. That is we want the price to increase. Our strategy starts with a ‘major’ trend reversal, and that is often a difficult call. The probability of success is low at this stage, but the reward, if it goes our way (up), is worth a trade. Our target is near the top of the screenshot.

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We first took Silver short at the left red arrow. Price went our way nicely – down. This week, however, has seen a good recovery in price. We entered again, short, at the second red arrow; this is a higher high – often not ideal for a short – but the three pushes up is a useful context for a trend reversal. From being nicely in the money, to out of the money, is part and parcel of our strategy. We hold until something tells us different, or until we get to, or near, our target. Our target is at the bottom of the screenshot.

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We shorted Copper at the red arrow position. That is we want the price to go down, and so far, Copper has obliged. We continue to hold until target. The recent retrace in price this week was not sufficient for us to add to our short trade.

Our medium term strategy holds good, for now

Here is a snapshot of our (open) results for the last week. I won’t usually show this detail as it can be misleading when we have a mix of recent and longer-term open trades. But as all our trades have similar creation dates, I felt it was okay to include.

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We have a medium-term strategy for these trades. Meaning from 6 to 12 weeks. Part of the plan is to open the trade early. If an early trade is not close enough to the extreme (a top or bottom), then we will manage the trade to achieve better entries. Being early is difficult for many as it is nearly always contrary to popular opinion. Also, being early can provide excellent gains only to see those gains retrace to a loss – which is emotionally challenging and the reason why many traders cash-in too soon.

By early trade, I should mention that we should also not be unreasonably early (it’s never that easy!). Patience is still key. For example, I think, a short in crude oil, currently, is too early. Crude has started to decrease in price this week from a recent up, but to take crude short now is premature. The picture is similar to long-term Treasury bonds that have a potential near-term short opportunity.

Current short trades in Gold, Silver and Copper.

We have open trades short with Gold, Silver and Copper.

Our strategy here shows promise. The aggregate of these trades has seen us in the money by some £1,000. Soon followed by us being out of the money by about £900. The latter was a consequence of the last FOMC meeting and interest rate announcements.

Higher prices, however, allowed us to add to our short trades more favourably and, later, as the price dropped again, to break-even on our lower priced, original, trades.

Our open trades (taken from eleven days ago) currently stand at over £3,000 in profit reasonably distributed between each of the commodities. Early days, however,  as we hold through (as long as our premise remains the same) to somewhere near our targets.

The following is an update of our trade watch list for Slow Trader fund:

No change in – Gold, Silver, Copper and Crude Oil.

Instead of the S&P, I’ve included the 20+ Treasury Bond ETF.

Moreover, in preference to the currency EUR/USD we will take GBP/USD.

Slow Trader Trades

In our fund (Slow Trader) we recently invested short – that is to say, we want the price to go down – in Gold, Silver and Copper. (This strategy is a one to three-month trade, but varies slightly for each commodity). 

Fund exposure is currently £70,738 (leveraged)

Silver stop risk is £1,953 – between 4 trades.

Silver target is £4,633 – between 4 trades.

Gold stop risk is £1,252 – on one trade. (A limit order is in place to short more if gold price rises).

Gold target £2,518 – on one trade.

Copper stop risk is £1,929 – between 2 trades.

Copper target £2,918 – between 2 trades.

We use the Commitments of Traders (COT) report to give us a small edge. The COT is, other than cyclical analysis, probably the only indicator that is not price based. And, therefore, an independent viewpoint. We combine the COT with our technical analysis of each commodity.

Here is an example of the COT released last night. The same information is available for each of our commodities. My attention is on what Commercial is doing.

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The importance of getting the technical analysis right is due to the COT being in lag by nearly 2-weeks. Which, based on our strategy, is between a half and a quarter of the expected trade duration. In other words, we need to use a right amount of interpretation (and rely on technical analysis) for a significant chunk of the trade time.

More specifically, COT figures are from each Tuesday but are not available until late evening (UK time) on the following Friday (i.e. ten days). As the markets close until Sunday night (UK time), it puts the COT information nearly two weeks old. But even with that considered it’s still the best, broad, indicative information we have – other than our technical analysis.

Slow Trader Fund Update

Slow Trader closed to any new funds until next year. Here are the amounts:

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For the sake of simplicity, percentage gain or loss refers to original funded amounts.

We are now ready for 2016. Our attention this year is on gold, silver, copper and crude oil. We will also trade from time-to-time the SPDR S&P 500 ETF fund (all sessions) and currency: namely the Euro against the US dollar. We may trade the occasional stock.

We have an excellent short signal developing for silver. That is, we consider silver will drop again in price. Signals for each of our commodities happen no more than a couple of times a year. Therefore, when we get them, we need to take full advantage.

The S&P and EUR/USD are not cyclical like the commodities – therefore we will trade these via lower time frame charts (one or four-hour chart and, occasionally, as low as the 15-minute chart).

Commodities are traded through daily charts and in conjunction with the COT report.

For those building funds for grandkids, or looking to buy the Aston Martin DB11 – then here we go!

Slow Trader Diary

Slow Trader fund up this week to + 5%.

To report the fund each week encourages trades to be cashed too early to show a profit. That is silly. Therefore, I propose to provide the fund report, whenever possible, the first Saturday of each month.

The diary of trades taken, wins and loss, and those trades that are on the radar, will be discussed each week as usual.

These are considerations coming up:

Crude oil (WTI)

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We have a buy signal on the daily chart shown above. A 60% probability of WTI climbing to $50. After that, the price may descend into a trading range or may continue climbing for a measured move up to about $55. Whether we hold or not at the $50 line will depend on price action and momentum when, and if, we get there. Also, the COT is in our favour for this trade.

Gold

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Gold has provided a measured move up, in agreement with the COT. After a breakout on 2nd October, gold is now in a short-term bull trend (a bull channel on the daily chart). It has reached a resistance level, however, and the likelihood is that price will fall back slightly (XAU USD) to $1150. A trading range above its 5-year low? If this happens, we will look for a buying opportunity if price action and the COT agree.

S&P 500

The S&P 500 has broken above the resistance level that we discussed last week. The ratio has now swapped to 60% probability of the price climbing. Indeed, a new high could result in the coming weeks.

This positiveness in the S&P puts a good light on stocks within the index. We will look for opportunities to buy ‘fundamentally’ good stocks as and when they provide price action buy chances.

My FTSE 350 top buy tips 2015

Nick’s spreadsheet shows us the real value of a company and measures a companies consistency of growth: here are my picks from Nick’s FTSE 350 spreadsheet. These companies show incredible potential future benefits and all with better than 80% consistency of grown.

I would look at buying within the next couple of weeks. You have, coincidently, proper sub-sector diversification here too.

Hargreaves Lansdown PLC, Rotork PLC, Intertek Group PLC, Weir Group PLC, Aggreko PLC, Premier Oil PLC, Playtech PLC, Randgold Resources Ltd, Rightmove PLC, Petrofac Ltd, Fisher (James) and Sons PLC, Aberdeen Asset Management PLC and Nostrum Oil & Gas PLC.

Energy companies, namely crude oil, will have a hesitant start to 2015 but then recover much of recently lost price.

In addition to the above companies, consider a simple index tracker of the FTSE 100, FTSE 250 and S&P 500. They will do well this year. Remember, the secret is attention to cost. Ongoing cost is more important than entry cost. Vanguard FTSE UK Equity Index has an entry of 0.4% of the fund but a low 0.08% current cost. Shop around.

Consider an ETFS Gold (LSE: Epic Bull). Gold will have a good 2015. Based on cycles we could see a gold high near the end of March, then a drop followed by a similar high end of October. For those that bought Centamin PLC look for a sell at one of these dates. Preferably the end of March.

Diversification through Treasury Bonds and Gilts are excellent for the longer term investor. If you don’t have these yet, then leave until next year. It is a fair assumption that interest rates will remain for a while and therefore Treasury Bonds will stay level or decrease slightly this year.

If you hold Domino’s Pizza, Burberry, Easy Jet or Hikma Pharmaceuticals – all previous recommendations – you could consider taking profits now. 

My next blog will be from Nick’s S&P 500 spreadsheet – for those that can invest in US stocks.