By Cory
Anatomy of a Neckline – Gold Chart
I have been chatting a lot recently with Kevin Vecmanis who is the founder of Vanaurum. Vanaurum is a service that uses AI to play out a wide range of scenarios focused on gold, silver and GDX. From these thousands of results his system develops a 21 trading day outlook for the 2 markets. When analyzing his system Kevin also writes some interesting articles with his findings. The article below caught my attention and I think is a good start to understand a bit about his system. Be sure to click the link below for another article that is a bit more technical but explains a bit more what his system is able to do.
Here is the initial article focused on gold and a “neckline” on the chart.
I’m going to dedicate time in this article to discuss some of the real-world mechanisms underlying chart patterns and price movements. Some view technical patterns as merely shapes, but these shapes are representing real underlying supply and demand characteristics. There has been a lot of discussion recently regarding the basing formation in the gold price and I want to dive into the mechanics of how these structures work, how they form, and how the implication of their resolution is derived.
Price is the Intersection of Supply & Demand:
It’s easy to look at market prices and forget what’s actually going on behind the scenes. Buying or selling a stock, ETF, commodity, or any other financial instrument involves dealing with another person (or algorithm acting on behalf of a person). There can be any number of reasons for selling something:
You think the instrument is expensive
You need to liquidate the investment for other non-investment purposes
You fear the price falling
You think something else has more value
Your expectations of the instrument have changed
etc…
The reasons for buying a financial instrument are often fewer. Typically one buys a financial instrument because they expect to make a profit in the future – whether through cash flow or price appreciation. There can be other reasons – diversification or status, to name two.
With commodities like gold, more often than not the interaction between buyers and sellers is predicated upon one party thinking it’s cheap and the other thinking it’s expensive. At certain price levels, there may be nobody that thinks it’s cheap enough to buy so the price falls until ‘bids’ start entering the market. Conversely, there may be times when everybody thinks the price is too cheap to sell so the price rises until an ‘ask’ (offer) enters the market.
“Cheap” and “expensive” are often the wrong paradigms to view the market through, especially with gold. What’s normally prevailing is expectations. If the number of people expecting the price to rise equals the number of people expecting the price to fall, typically you have reached a price equilibrium in the market. But we live in a dynamic world and the expectations of the investing public are always changing. Prices are …read more
Source:: The Korelin Economics Report
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