Gold , Oil & The Dollar
October 31, 2006 2:30 p.m. AET (10:30 p.m. ET)
Long Term: Gold remains in a primary up-trend with support at $540.
Medium Term: Expect further support at $55.
Medium Term: A peak below the high of [E] would make a bearish descending triangle, with support at $1.250/$1.245.
Long Term: A rise above $1.30 would test the previous high at $1.37, while a fall below $1.245 would test primary support at $1.165, threatening to complete a large head and shoulders reversal.
Medium Term: Respect of support at 4.60% would confirm that we are still in a primary up-trend. Failure of support, however, and a break of the long-term trendline is now a distinct possibility.
The yield differential (10-year T-notes minus 13-week T-bills) is declining further below zero, increasing risk of an economic slow-down.
~ Richard L. Evans
Technical Analysis and PredictionsI believe that Technical Analysis should not be used to make predictions because we never know the outcome of a particular pattern or series of events with 100 per cent certainty. The best that we can hope to achieve is a probability of around 80 per cent for any particular outcome: something unexpected will occur at least one in five times.
My approach is to assign probabilities to each possible outcome. Assigning actual percentages would imply a degree of precision which, most of the time, is unachievable. Terms used are more general: "this is a strong signal"; "this is likely"; "expect this to follow"; "this is less likely to occur"; "this is unlikely"; and so on. Bear in mind that there are times, especially when the market is in equilibrium, when we may face several scenarios with fairly even probabilities.
Analysis is also separated into three time frames: short, medium and long-term. While one time frame may be clear, another could be uncertain. Obviously, we have the greatest chance of success when all three time frames are clear.
The market is a dynamic system. I often compare trading to a military operation, not because of its' oppositional nature, but because of the complexity, the continual uncertainty created by conflicting intelligence and the element of chance that can disrupt even the best made plans. Prepare thoroughly, but allow for the unexpected. The formula is simple: trade when probabilities are in your favor; apply proper risk (money) management; and you will succeed.
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