Dollar Weakens, Gold Rises
November 28, 2006 5:30 p.m. AEDT (1:30 a.m. ET)
Long Term: Primary support at $540/$550 may come under pressure if oil prices continue to weaken.
Medium Term: A breakout from the broadening formation would signal the direction of crude oil prices over the next few months. A failure to test the opposite border may indicate which direction that is likely to be.
Long Term: Threat of a large head and shoulders reversal has receded and the euro's up-trend against the dollar is likely to continue.
Medium Term: Failure of the long-term trendline would complete the bearish picture for long-term yields.
The yield differential (10-year T-notes minus 13-week T-bills) continues its down-trend below zero, increasing the risk of an economic slow-down.
and the ability of households to spend more than they earn because the value of their house is rising.
~ George Soros
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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