PRECIOUS METAL SYSTEM REVEALED
Subscriber Special Ep.1
Hello everyone!
Today I’m writing this special edition post exclusively for all the paid subscribers! So if you are reading this newsletter, you are about to get an in-depth system reveal of the mechanisms we use to time the precious metals market. At the end of the newsletter, I will also provide some on-chart examples of where we called a top or low and why we did it!
Systems and tools!
As many of you have already learned from the newsletters, we use a combination of both cycles, elliot waves, and some basic momentum indicators. Next to those systems, we also take into account the necessary background drivers of precious metals, such as geopolitical issues.
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Let’s dive into the big secrets below:
1. Cycles
The first and one of the most important methods are cycles. I’ve already written a post on cycles a couple months ago, which you can read by clicking HERE. Or below :
Introduction to Cycle Theory
Origin of Cycle Theory Cycle theory in investing refers to the idea that financial markets, economies, and certain assets tend to go through cycles of expansion and contraction. These cycles can be driven by a variety of factors, including changes in monetary policy, economic conditions, and mainly
It is really important to read that post, and below I will summarize briefly for the gold market:
A daily cycle is usually around 25-30 days long, sometimes a bit shorter near the start or end of a cycle.
It has a DCL (Daily Cycle Low) and a DCH (Daily Cycle High) which mark the lowest point and the highest point of the cycle, respectively.
A cycle can be called right-translated or left-translated. Meaning, if you take the midpoint of a cycle at day 15, the cycle would be right-translated if the top (DCH) occurs after day 15. Vice versa for the left-translated cycles (day 14 or before)
In a strong uptrend, the daily cycles should be right-translated, meaning that we are rising for a longer period than we are declining. In a strong downtrend, the DCH will tend to be early or left-translated, and thus the cycle will spend more time declining.
These daily cycles then occur in larger weekly cycles, yearly cycles, etc. The two most commonly tracked timeframes within metals are daily cycles and weekly cycles. Also, within a weekly cycle, there are usually 3–4 daily cycles.
Example below from the post linked at the start:
Here we had a series of two right translated cycles, and afterwards we had a cycle failure, which indicated more weakness to come. A cycle failure occurs when we prematurely break the pattern of higher lows and higher highs. In the example, we broke the pattern after only 2 daily cycles instead of usually 3–4 cycles.
2. Elliot Waves
In simple terms, Elliott Waves suggest that market prices move in a repetitive pattern of five waves in the direction of the main trend, followed by three waves in the opposite direction. These waves represent the collective psychology of market participants and their emotional response to the market's ups and downs.
Here's how the Elliott Wave theory works:
Impulse Waves (Trend): The first part of the pattern consists of five waves (labeled 1, 2, 3, 4, and 5). These waves move in the direction of the overall trend. In a bullish trend, waves 1, 3, and 5 are upward waves, while waves 2 and 4 are corrective downward waves.
Corrective Waves (Counter-trend): After the five impulse waves, there are three corrective waves (labeled A, B, and C). These waves move against the main trend and are meant to correct the price movement before the next impulse wave.
The pattern then repeats itself, with each larger wave being composed of smaller waves and each smaller wave being part of larger waves.
Overall, the 3rd wave and the 5th wave extend to certain fibonacci extensions of the 1st and 3rd waves, respectively.
3. Elliot Waves and Cycle Theory combined
When used together, Elliott Waves and cycle theory complement each other's strengths, creating a powerful approach to market timing.
Confirmation: When Elliott Waves indicate a potential turning point, cycle theory can provide additional confirmation if it aligns with the timing of a cycle.
Cycle-Based Wave Analysis: Understanding the prevailing cycle lengths can help traders identify which Elliott Waves are more dominant at a given time. For example, during a longer-term cycle low, the fifth wave of an first impulse might be less significant, or during a shorter-term cycle peak, the third wave is extremely strong.
Risk Management: Combining these methods can also aid in risk management. If both Elliott Waves and cycle analysis suggest a high probability of a trend reversal, traders might consider tightening stop-loss orders or reducing position sizes to protect their capital or to enter a position with well-managed risk at a low.
4. General momentum indicators
For general momentum, I use the EMA9 and EMA20. These both serve as trend indicators. If the candlesticks are above the EMAs, then we are in a bullish trend, and if the candlesticks are below the EMAs, then we are in a bearish trend. Usually during a cycle, we get quite stretched above or below those indicators, so every time we are stretched above or below those indicators, we already know that we will have to reconnect with those EMAs in the near future.
Example:
On the monthly candles for gold, we can clearly see that we were extremely stretched below the monthly EMAs back in October and November. This doesn’t occur that often on a monthly timeframe, so it was extremely likely for a temporary low to be somewhere there. To mix this up with the cycle analysis, we were also really close to the timing band of the famous 8-year cycle low in the metals. Combining both allowed for a good probability that a low would be made there. Afterwards, we got an extreme bullish uptrend straight to all-time highs in only a couple months. Here at the ATHs, we were very stretched on the upside, so a pullback into an (weekly/intermediate cycle low) ICL was likely.
Next up, a timely call we made to call a local top in silver:
The above example is what we are able to call it due to combining all the sources.
Another example below:
https://twitter.com/Anais_GoldGirl/status/1673247177429098496?s=20
Here we said that due to the positive divergent low, cycle timing and geopolitical issues, the odds were extremely likely that the low was in.
What now? (date: 28/07)
In short:
We have made another ICL since June 29th, so we would expect about 2–3 more upward daily cycles in this longer-term uptrend. This intermediate cycle is fully intact until the previous ICL breaks.
SILVER: $26 is the next resistance as we progress towards $28. But on the downside, I want to warn people that we don’t want a weekly close below $23.7. So longs in the current area with a hard stop at the current ICL low at $22 seem like a good trade here.
GOLD: First gold has to recapture $1974 and then ATHs will probably break at a similar time as silver breaks $28. On the downside, gold should hold $1940 for the weekly close, in my opinion. Hard stops below $1895-$1900 ICL.
Additional charts and updates from Thursday’s and Friday’s action will be included in the weekly hot take update later this weekend!
Thank you
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Great content!