Thursday, January 12, 2017
Here's how you trade the GDX: an example
Step 1: a technical analyst (who really does know what he's doing when it comes to TA, so it's not like I'm knocking him) identifies a strong resistance region for GDX which he thinks it could turn back down from.
Step 2: but you realize that markets have been overskewed since the election. Whatever happened in November (or even October, as I noted) has to be worked completely out of the market before it can move for a real reason.
Step 3: you also realize that whatever Jojo says is the technical picture for gold, there's thousands of other market participants out there who've also studied TA and are thinking the same thing. His thesis is therefore big enough to make a market. Thus it's big enough for you to make money by taking the other side, if it turns out wrong.
Step 4: you notice $USD and USTs were grossly overbought and should turn around soon, and you know some people trade gold based on $USD and USTs.
Step 5: you also know that gold getting back to $1200 changes its sentiment environment completely, because it might mean people start thinking that the higher low has been printed.
Step 6: so you don't be a pussy, you wait to see if that resistance region holds, and you wait to see if $USD and USTs break down. Cos that means the boat is tipping back.
Step 7: then it happens, the TAs who lightened up on gold and GDX have their "oh shit it's still going up" moment, people short cos of $USD and UST strength have their "oh shit" moment too, people who see a higher low go "oh shit" and buy in, and then you start making money.
That's what I'm trying to do with a gold miners ETF (HGU) right now.
If GDX breaks thru $23.30 things get fun.