Silver Prices: Price Action Contracting, Follow the Break
- Silver near-term trend remains pointed lower despite long-term support
- Triangle developing within descending channel
- Waiting for a break of the pattern before taking action
In yesterday’s commentary, we noted the conflict between long-term support at hand and the short-term trend which suggested a further drop in silver prices before possibly finding a bottom. Not a lot has changed since yesterday other than the potential for a triangle formation within the downward channel developing on the intra-day time-frame.
A break of a nicely developed triangle would lead to either further downside channel-building by finding support on the lower parallel or a capitulation-style move of the decline dating back to the very beginning of the month.
The height of the triangle formation suggests about a 60 cent move once it breaks. Should it break to the downside, a decline of that size will push silver to the May swing high at 17.99.
Keep in mind, while the trend is lower and suggestive of a continuation lower out of the triangle, these patterns can break in either direction; triangles are simply contractions in volatility indicative of pending expansion. On that note, it is important to wait for the pattern to develop and break, first, before taking an entry.
If the pattern breaks against the trend, then the area between 19 and 19.20 will quickly come into focus as resistance to contend with. This will make for a more difficult trade in the short-run, but be consistent with the current long-term support zone silver is presently in.
For now, we will remain patient in waiting for an outcome to the contraction in price before taking a trade.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX.
He can be reached via email at firstname.lastname@example.org with any questions or comments.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.