Oil, US Dollar, and Gold...

My trading methodology is based on identifying important levels and trends in the markets.  It's common sense and based on logic.  An understanding of the supply and demand dynamics that are occurring can lead to low risk profitable trades.  Some Technical Analysts talk about things like Fibonacci Retracements, Elliot Waves, and Gann Angles. I don't.  I think that stuff is cool to talk about, but I question the legitimacy of some of these more esoteric techniques.

But it is clear and no rational person would question that there are certain levels in markets that are more important than others and that prices move in trends.  Markets that trade trillions of dollars and have countless participants also have 'memories'.   For example, take a look at Oil.  You don't need to be a chartist to see that the $51 level is a level of importance.  In October of 2015, June 2016, and October of 2016 when Oil traded up to this level it rolled over and sold-off.  Last month it tested that level again before finally breaking through.  Now that level has become a support level.

 

 

If you think about this, it is truly an amazing phenomenon. How could Oil have the exact same valuation at four different periods in time?  Academics or fundamental analysts would have a hard time explaining this.  They might say that markets are random and efficient but clearly they aren't.  If they were, they why do markets go down faster than they go up?   The reason why is because markets rise on hope and sell off on fear and fear is a much more powerful emotion.  And the reason why markets have memories is because levels and trends exist, and if you understand this you can always find low risk trades.

Look at a long-term picture of the US Dollar Index.  The levels around 93-94 were support eight times over the past two years and the 100 level was resistance in March and November of 2015.  The dollar broke this level in November and when it consolidated the exact low on December 5th was at 100.  Amazing.  Even someone who has no knowledge of finance or markets can see that certain levels have greater importance than others.

 

An understanding of these dynamics lead to a profitable trade in Gold that I talked about on December 27th.

http://bullsheadtrading.com/chart-of-the-day/2016/12/27/gold

Gold trended lower from late October through the middle of December.  Then it found support around the $1,125 level.  When the downtrend was broken and it started to rise the trade was entered.  In other words, when it stopped going down and started going up I bought it.  I have not taken a profit yet because it hasn't reach the price target, but a profit is locked in if I have self discipline and sell it at my stop-out if it goes lower as well.