I am starting to look for potential trades and will initiate them following indications on the Elder Impulse chart. Remember, the philosophy behind Elder Impulse is to identify momentum shifts and either enter or exit positions at these points. The rules are quite simple:
1. identify the longer term trend by looking at the next larger scale from where you plan to trade. For instance, if your trade will be measured in days, look at the weekly chart. If your trade is measured in hours, look at the daily chart. If the trade will be designed to encompass many weeks, look at the monthly chart. Identify trend by multiplying the 13 unit EMA by 5 and observing whether price lies above or below this level. For instance, a daily chart trade would look at the 65 day EMA. An easy way to see this without cluttering the chart with too many lines is to set up another MACD indicator with (1,65,1) as the parameters and a horizontal line at zero. When indicator is above zero, price is above the 65 day EMA, and only long trades should be considered. If below zero, then only short trades should be considered. In my case I am looking for a long trade and the chart indicates that the 65 day EMA is indeed suggesting a long trade.
2. After determining long or short, look for the color of the price bar. Red indicates a short sale, Green a long purchase, and Blue an exit from the trade. If the longer term EMA is indicating a long position, all red bars are ignored. If longer term EMA indicates short sale, all green bars are ignored. Green bars result when the 13 unit EMA and the MACD histogram slope are both positive, indicating momentum change higher. Red bars result when both MACD histogram and 13 unit EMA slopes are negative, indicative of momentum shift to lower prices. Blue bars result when one of the two slopes is positive while the other is negative, indicating waning momentum.
This system is designed to leave the first and last gains of the trade on the table and follow momentum. It will be slightly late getting onboard and get you out early. I see a potential trade coming in GLD and I am looking at the MACD histogram closely. This usually is the first of the 2 indicators that takes on a positive slope. When it does, a blue bar results indicating all potential short trades should exit (current bar is red). This is a message that downside momentum is waning. If the reversal is real, the 13 day EMA soon follows suit and the slope goes positive and paints the price bar green, indicating a long entry. I favor looking at all the indicators and then judging whether an entry early on the blue bar, with a tight stop, is warranted. An early entry might be a good play if indicators are at extreme levels. Waiting for a green bar would be more prudent if indicators were in relatively normal ranges that result from horizontal price action or low volatility.
So in summation, the chart shows us that the 65 day EMA is positive and therefore indicates only long trades should be considered, all red bars should be ignored. We are looking for a blue bar and then will make a judgement regarding the authenticity of the move. I will either enter or wait for the green bar.
Silver is predictably in a similar situation as gold, but indicators are show a little bit more of an extreme situation. Price is quickly approaching the bottom of the Bollinger band and a zone of support formed there. The 200 day MA joins the Bollinger band and a previous low around 17.0. The 65 day EMA is slightly negative and hooking up. It will likely render a long signal quickly upon a reversal in price. If that indeed happens, look for the MACD histogram to take on a positive slope and render a blue bar. That is the signal to get ready to enter long positions. I would be more inclined to enter on a blue bar considering the indicators at this point. SLV is more extended to the down side than GLD, by virtue of price relative to the Bollinger band. We'll see.
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