Opportunities on Metal Markets: The Leaders and Laggers

You will see that it’s making lower highs, implying sellers are more dominant in this market than buyers, however the buyers have a lot of support for gold at $1200, which is the blue line drawn on the chart.

Now take a look at the monthly chart for Copper:

You will see that Copper is very similar to gold, sellers are in control but there is a key level of 3.000 that will remain key for both sellers and buyers, until when and if we see this level broken to the downside.

Now take a look at the Monthly chart for Silver:

And then the monthly chart for Platinum:

You will see that both of the Silver and Platinum monthly charts above share similarities with the Gold and Copper charts that we saw earlier:

1. They are all making lower highs
2. They all have very significant Monthly chart Support/Resistance levels nearby

The difference that makes Silver and Platinum the “leaders” is that they also:

1. Are making lower lows in addition to Lower highs. (Lower highs combined with lower lows equals a downtrend)
2. Have broken below their key support/resistance levels

How can this help us?  There are at least two ways that traders might use this information to their advantage.

Option one is to look for trading opportunities on the leaders, in this case Silver and Platinum. We would do this if our preference was to find and trade the strongest markets only. We would find trades by drilling down to lower timeframes on these contracts and looking for a reason to trade – ultimately more ingredients than those we saw on the Monthly charts alone.

Take a look for example at the daily chart for Platinum:

This chart shows a key level at the blue line around 1245, a break of which may provide opportunities for short traders this week, looking to trade one of the metals market leaders.

Option two, is just as good and just as valid but it focuses in trading the lagger, as compared to the leader. You might have a preference to trade one or the other, or like me you might not care in the slightest! I look for good reasons to trade and try not to have preferences for things like market (forex, futures, stocks) , direction (long or short) or strategy (PLT, Expansion, Cluster, etc).  The theory for trading a lagger is that it should catch up to the leaders.

So in this instance, Silver and Platinum have broken key levels to the downside, adding some extra weight (one more ingredient) that Copper and Gold are likely to as well.

Take a look at this weekly chart for Gold:

On the plus side we have reasons to consider a short such as:

1. Downtrend
2. Fanning averages
3. Small bearish candle
4. Price in Moving Average Sell zone
5. Gold lagging other more bearish metals markets

We have more, but that short list is already compelling. The one thing short gold traders would have to consider this week is the biggest negative against the trade currently:

1. There is major support for gold at $1200.

Personally I see this as a good window of opportunity for shorter term trades between the current price on the way towards $1200. Thereafter, I see more potential again for a break lower which I will assess in more detail, when and if Gold tests that level again.  At this point, I would decide if I take profits on all shorts at $1200, or remain short for a potential break of $1200.

For now, the important thing to realise is that the metals markets are moving and there are potential trades across all four of the metals we discussed here.  When correlated markets show clear signs of leaders and laggers, it is one more ingredient that we can consider and see if there are opportunities to add probability to a trading decision by using this information.

If you would like to learn more about the strategies and the trading terminology that we use at Trade With Precision, please join us on this week’s free trading webinar. I promise we will teach you a lot more and we can answer some of your questions as well.

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