Silver Consolidates - How to play the break
Silver (XAG/USD) is remembered this year for its parabolic run up to its $49.78 ozt high on April 25th of this year. Also to be recalled is the metals rapid decline of over 30% from this high in less than two weeks of trading. Currently Silver is testing long term support near $35.30 ozt. A break below would suggest another violent selloff, while a bounce could reasonably bring new highs.
Around the world silver is a commonly used industrial agent in building for its conductive properties. Fundamentally, demand increases for silver as economies are expanding and building increases. If the global economy grinds to a halt, the demand for silver may decrease as well. For a broader look at the fundamentals of Silver, I will be discussing this topic in detail on Thursday at 5am ET in our live webinar room. You can join me HERE , for a live trading discussion on metals trading.
Moving in to a H4 chart, we can see silver consolidating in a wedge formation. Currently, support is holding near $35.10 ozt. A breakout below our support level would imply that our current uptrend has finally matured and come to an end. A breakout above resistance ($37.05) would indicate a resumption of the trend and expectation of higher highs being formed.
My preference is to enter XAG/USD using entry orders. I would look to sell Silver below current support, near $33.00 ozt. Buy entry’s are to be placed over current resistance at $38.5 0 or better. Stops should be set to risk at maximum $2.00, and limits should potentially look to lock in a minimum profit of $4.00 per contract for a clear 1:2 Risk/Reward ratio.
Alternative scenarios include price continuing to bounce between support and resistance levels prior to a breakout.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.