Traditional technical analysis is more of an art than a science. Experienced practitioners of the art of technical analysis can look at the same chart and come to different conclusions. The way we resolve various contradictions is by backtesting and taking only those signals that show high probability of success in backtesting.

We have found that signals based on multiple traditional techniques are more reliable than just one technique.

Right now, a confluence of a traditionally well understood chart patterns combined with some traditional indicators on charts of gold ETF  GLD and silver ETF  SLV is showing some hope for the bulls

 

The chart shows that gold is tracing out a triangle. The pattern being traced out is known as a right angle triangle. The right angle triangles come in two variations. According to Robert D. Edwards and John Magee, the granddaddies of modern technical analysis, descending triangles are bearish formations that result from distribution.

It is generally accepted that descending triangles are typically continuation patterns. The triangle shown on the chart is in a downtrend for gold. Therefore, by applying techniques of Edwards and Magee, there should be a breakdown as the apex of the triangle forms.

But here is the good news for gold and silver bulls. When we combine an approaching descending triangle apex with a 21-period RSI that is approaching a seven-period moving average from below and when RSI has traced out a higher low as shown on the chart, and ADX over 14 periods is around 15 and turning upwards after a prior low ADX of under 10 and the immediate swing high is equal to the previous swing high, and -DMI over 14 periods is higher by at least 8 points over +DMI, the break is usually on the upside….Read more at MarketWatch

 

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