Dollar Outlook Weakens
December 12, 2006 8:00 p.m. AEDT (4:00 a.m. ET)
Long Term: Demand for gold is being driven by the weakening dollar. Stronger oil prices would further weaken the dollar and strengthen gold.
Medium Term: Reversal above $64.00 would confirm the breakout from the broadening formation, but price appears headed for a test of the lower border of the formation after the fall below $62.00.
Long Term: A break above $1.37 would signal that the long-term up-trend has resumed.
Medium Term: Falling long-term yields often anticipate a decline in short-term yields. And falling short-term yields normally signal an economic slow-down.
The yield differential (10-year T-notes minus 13-week T-bills) continues its down-trend below zero, increasing the risk of a sharp down-turn as short-term rates rise.
in doing things for others, have I been disloyal?
In my interactions with friends, have I been untrustworthy?
Have I not practiced what I have preached?"
~ The Analects of Confucius
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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