Silver Update
Trader Scott’s Market Blog
September 5, 2016
From my August 21 post regarding a short term silver trade that I believed was in the PROCESS of setting up, but not yet having “broken support”, so not yet my entry point, but getting there – this is what I wrote:
As a free service, I can’t/won’t give specific trading advice. The chart below shows the shorter term view of silver futures, which is a market that I’m interested in on a trading basis. One of my favorite trades is a market that’s in a fairly clearly defined TRADING RANGE/SIDEWAYS TREND. The accompanying chart shows that the upper side/RESISTANCE is around $21 and the low end/SUPPORT is around $19.20.
I always buy into weakness. The majority of people get scared when a market is falling. They then get bearish and they’re afraid that the market is going to go below the SUPPORT area and then keep falling. That particular situation is actually one of my favorite entry points into a trade or investment. That’s because I understand/respect/believe in SUPPORT and RESISTANCE areas. So when a market “breaks a SUPPORT area”, I actually will often step up and buy (dependent upon the technical price vs. volume situation at that time). If the technical structure of that market is showing the downside pressure is abating as it trades in its’ RANGE, then a “break of SUPPORT” is a very low RISK/high PROBABILITY entry point into a market. And conversely it’s a situation when most people think it’s the worst time to enter. The great Richard Wyckoff called this particular situation a springboard entry point.
When the market did “break support” several of you wrote to me and told me they didn’t think that trade will work out, which is always a possibility with any particular trade. But I know the very high success rate of this type of trade setup, and that is my only concern.
And the first chart is the exact chart that I posted then, followed by the current update.
Now here’s the update:
As I stated, I love to buy into markets that have supposedly broken support. The * below shows the big (relatively, on a short term basis) selling wave, which closed right at the low. The corresponding volume saw a very large pickup. That “alerted” me to the PROBABILITY of the “manipulators” wanting to “break support” thus triggering sell stops. That’s what happened and I love that trade. The support was around 19.20. The beautiful volume characteristics appeared. And this is another example of a Wyckoff spring. I have taken partial profits and now it’s about RISK MANAGEMENT of the trade.
'Trader Scott – Silver Update – September 5, 2016' have 6 comments
September 6, 2016 @ 7:11 am Julian
Thanks Scott for the update. I thought I would share this with everyone. I have mostly invested with long term positions For me, the most profitable long term trade over 20 years of investing has been the CEF(Central Fund of Canada). It is a closed end fund, which means no more shares are created, the number of shares are fixed. To get in, you have to purchase existing shares. I always buy when the discount is around 10%, and then start selling a portion when the premium is around 10%. It has been profitable for me. It requires patience, because you have to wait awhile to see profit, but I think the risk is very low. I have been waiting for a few years with my current position. Here is the discount/premium chart of CEF: http://t12i.imgup.net/CEFnavCyclca3d.png , it is a great indicator of sentiment in precious metals. Currently there is a discount of about 4%, but it has been narrowing over the past few months. Reading the blog has got me somewhat interested in short term trading, thanks for putting it up. I purchased USLV when support was recently broken, it was my first trade with a short term horizon. It has worked out well so far. Based on my CEF premium/discount analysis we are in a upward trend in the gold/silver sector. It seems if I make short term trades when opportunities arise like above, then the risk is low because the long term trend of metals is currently upwards (narrowing CEF discount).
September 6, 2016 @ 12:25 pm traderscott
Julian, do not ignore taking partial profits – it’s an art, not a science. Yes, i do own some CEF and by only buying when at a steep discount is sort of akin to buying below “broken support” areas. Right?
As to short term trading. Don’t mix/ confuse/intermingle your time frames. The long term trend of the market may have zero to do with your short term trading. There are hard to explain nuances, but the general concept stands.
September 6, 2016 @ 5:18 pm Julian
Thanks Scott, I did note your comment in a previous blog about how short term market behaviour may have nothing to do with your long term opinion. What I was wondering was, if one comes to the conclusion that in the long term PM are going to rise, wouldn’t it be advantageous to trade on pull backs for short term profits ?, that is if the long term ride is up. Doesn’t that reduce risk for short term trading , if you are trading into a rising market on pullbacks ? Sold all of USLV today, for a 16% gain. Basically, I have my long term position (CEF) and would like to just strategically pick a trade here and there for practice… Cheers…
September 6, 2016 @ 6:31 pm traderscott
Julian, are you British? Good job taking your profits. Just remember, don’t do the woulda, coulda, shoulda thing if USLV keeps rallying. Your focus in a short term leveraged trade is getting in and getting out. It’s actually sort of like having a real job – which I know nothing about, so I don’t know why I said that.
But, the answer is yes. You’re progressing – starting to put it together – getting how to continue lowering your RISK/increasing your PROBABILITIES. If you can do a fantastic job of understanding what the market TREND is, then you’ve just added another layer of RISK lowering. Because, correct, IF the TREND is up, then you buy into the very low end of SUPPORT and you have two powerful tools working for you combined. And keep doing it over and over. You just discovered what I do bro- Good for you.
The HUGE PROBLEM though is it takes a LONG time to truly be confident working with overall TRENDS.
As you know, I believe that the big TREND is up in gold, but what if we’re wrong. Then, like from Sept. 2011 thru Dec. 2015, you would have been doing those trades in an overall DOWNTREND. Those trades are not going to work as well. But why doing this strategy with SUPPORT and RESISTANCE zones is so wonderful is because you usually get a quick blast higher. Even if that move gets aborted, because the bigger TREND is down. But that’s where taking partial profits comes into play. Because you’ve booked some profit/lowered your RISK, and then you can move your stops up to break even. And even in an overall DOWNTREND, you can SURVIVE. And really Julian, markets are really just about survival.
September 7, 2016 @ 7:04 am Julian
Hi Scott, I am of Irish background, but originally from Lancashire, England where they like to eat potato chip sandwiches. I currently reside in Canada. I have had some success with picking longer term trends but I am a novice with regard to short term trading. Your blog has sparked my interest in shot term trading, thanks again.
The long term trends I picked up though my experiences traveling, reading a lot, listening to this station, and most importantly thinking for myself. By the way, I read “Nobody knows Anything” yesterday, it was a good read.
One thing that I am a little confused about is the drawing of support and resistance lines. There seems to be different approaches, for example pivot high-low, volume at price, or maybe even psychological resistance levels, like the $20 dollar level of silver… which is whereabouts I sold USLV. There seems not to be only different approaches but different time frames. i.e. support and resistance will differ on a daily/monthly chart. Have you found any “best way” to draw resistance and support lines that have worked for you ? Maybe combining different methods… or am I making it too complicated ?
Cheers…
September 11, 2016 @ 11:50 am traderscott
Potato chip sandwiches sounds kind of redundant. Anyways, Julian drawing of SUPPORT/RESISTANCE (S/R) areas is an art, not a science. The only way that it becomes less complicated is to keep at it. You have to “see” and “feel” it working in real time with real money on the line. Those experiences then give you the confidence that you need to “understand’ it. I’ve seen trades work with my money on the line literally thousands of times using S/R.
I will do a separate post about how I approach this subject.