Don’t play the most dangerous game in trading

January 21, 2014 08:47 AM

The two trend reversals everyone has been waiting a year for are about to take place, but they have not yet started.

While I do think 2014 is the year we see gold (COMEX:GCG14), silver (COMEX:SIH14), miners and many other commodities rally, it is important to follow the trend and wait for a reversal to form before getting overly excited and long commodities.

Each time we see the daily chart form some type of bullish pattern, gold market traders become instantly bullish. And each time this happens, they get another reality check about their trading technique of trying to pick a bottom.

Buying into a bear market rally is not a high probability winning position. Odds favor that sellers will pull the price down and likely to new lows.

This January is one of those times, and gold market traders are getting excited and long positions. While the bottom may be in for precious metals, buying a bounce in a bear market is tricky and you better have some trading discipline to exit if price starts to sell back down.

Eventually, we will see the stock market rollover and breakdown below its support trendline, and gold will rally. But keep in mind, some of the largest percentage-based moves take place just before a reversal. What does this mean? It means that the stock market could easily go parabolic and rally for a few more weeks, then reverse down sharply. And precious metals would do the opposite, sell off, make new lows, then reverse back up and start a new bull market.

Stock Market VS. Gold – Gold Market Traders Be Aware!

Below are a few more charts showing my big picture trend analysis for silver and gold miners.

Gold Market Traders Conclusion

In short, the precious metals sector is still in a bear market and has not yet reversed to the upside. As you know I don’t pick bottoms or tops that go against the longer term trend. In this case the trend is down for precious metals, so I am not trying to pick a bottom.

While I am starting to get excited about the eventual bottom in gold, I am still sitting on the fence with my cash.

About the Author

Founder of AlgoTrades Systems., internationally recognized market technical analyst and trader. Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. He is responsible for market research and trade alerts for of its newsletter publication.