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Gold Presses Fibonacci Wave Relationship

Gold Presses Fibonacci Wave Relationship

2014-06-04 03:13:00
Jeremy Wagner, CEWA-M, Head of Education
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Talking Points:

  • Triangles are consolidation patterns that tend provide clean technical levels to trade from
  • Gold may be nearing a bullish reaction point that offers a trading opportunity to buy
  • Try trading gold in a practice demo account

Gold appears to be consolidating in a sideways triangle for the past 12 months. This is a big consolidation pattern that offers some trading opportunities inside the triangle.

Look for the yellow metal to find support over the next several days and a potential $100 rise in the price of the gold.

The Anatomy of a Triangle

Triangles are consolidation patterns that allow prices to trade sideways in an effort to alleviate overbought and oversold pressures. In the case of gold, it has been working its way lower for the past three years and needs to consolidate those losses, which it has been doing in the triangle pattern.

Gold Presses Fibonacci Wave Relationship

Elliott Wave triangles are made up of five waves inside the triangle with each wave being contained inside the previous wave. In the idealized example above, notice how wave ‘B’ ends BEFORE the beginning of wave ‘A’. Notice how wave ‘C’ ends BEFORE the beginning of wave ‘B’. This continues until prices squeeze together in five waves (A-B-C-D-E) then they eventually explode.

In the same idealized example above, it appears gold is closing in on the end of the ‘D’ wave which should yield a bounce higher in wave ‘E’.

Gold Analysis: Bulls have Fibonacci reasons to buy

Gold Presses Fibonacci Wave Relationship

(Created using FXCM’s Marketscope charts)

Here is the actually price chart of goal with the green triangle labels. There are two wave relationships that point towards the end of the ‘D’ wave ending near $1235 per ounce. Both wave relationships are expressed through alternating waves having a fibonacci relationship in length.

First, inside the green ‘D’ wave, you’ll see we have a blue a-b-c sequence. Many times, the length of wave ‘c’ will have an equality or fibonacci relationship to the length of wave ‘a’. In the case for gold, the length of blue wave ‘c’ equals blue wave ‘a’ times 61.8% at $1235 per ounce.

Secondly, green wave ‘B’ and green wave ‘D’ are alternating waves. If you take the distance of green wave ‘B’ and multiply it by 61.8% and project it for a distance on green wave ‘D’, it yields a price target of $1235 per ounce.

So we have two different alternating waves pointing to the same price target. This means there will likely be a reaction higher near $1235. If $1235 does fail, look to $1190-$1200 providing significant support.

The price target to the upside in this scenario would be $1340-$1390. So there is enough room to the upside to position towards the long side of the trade.

Suggested Reading: 2 Methods to More Patient Trading

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education

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