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GLD Wedge Pattern Trade Ideas
Posted by Blain Reinkensmeyer
December 17, 2007 at 12:05 pm
The Streetracks Gold Trust, GLD is an ETF that tracks the price of the gold bullion. Over the last month and a half GLD has been forming what is known as a wedge pattern on its stock chart. This pattern typically yields some good opportunities to make some easy money.
A wedge pattern is distinguished by a series of lower highs followed by higher lows until the stock eventually pushes through either the support or resistance which is the sign of its new direction, and your buy or short point.
Take a look at this chart I just made of GLD and you can see the wedge pretty easily:
Click to View, Click again to Zoom
There are two simple ways to trade GLD or any stock chart that forms this type of pattern:
- Buy it when the resistance line (lower highs) is broken - In the case of GLD the buypoint would be say $81 on strong accumulation volume which means institutions are supporting the move.
- Sell it short when the support line (higher lows) is broken - GLD this puts us at a short point of say $77.50 on strong distribution volume.
Gold is an interesting discussion topic now because of the fact that as of now there may not be any more rate cuts simply because of the economy’s current “situation”. Gold rallies on rate cuts because the dollar weakens and Gold becomes more heavily in favor as a hedge, or insurance against risk. If there are no more rate cuts coming, institutions may gradually begin to step away from gold and back into the dollar for long positions.
The pattern looks more like a pennant to me, which is supposed to be a continuation pattern right? A period of consolidation before continuing on with the trend. Obviously any position taken before a breakout in either direction based solely on a pattern is speculation.
The price is also bouncing around between the 20 and 50-day MAs
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