Daily and Weekly Candlesticks Indicate Potential Support
Although gold pricing closed higher on the day and above yesterday’s open, prices still declined for the week. However, one key element in the trading range created this week was the low. Gold futures traded to a low of approximately $1267 per ounce, which matches within a few dollars to last week’s lows. This is significant in that it shows the potential for that price point to be a major area of support.
These equal lows can be seen best on a weekly gold chart which uses Monday’s open and Friday’s close as the two points creating the body of the candlestick, and the highest and lowest trading points of the week to create the upper and lower wicks.
The price point of $1267 also matches up with the 50% Fibonacci retracement level. This retracement has a data set which begins on November 11th, 2018 when gold hit a low of $1196, and ends in mid-February when gold reached this year’s apex of $1350 per ounce.
When price action is viewed from a daily candlestick chart, we can identify a very simple two-day pattern known as an “engulfing bullish”. This pattern indicates a potential bottom if it occurs after defined downtrend, with the lowest trading point occurring as a red candle, (which simply means that closing price occurs below the opening price). On the following day the green candle “engulfs” or covers the entire body of the red candle proceeding it. In other words, the trading range between the open and close extends above the open and below close of the day before. Of the two-day reversal patterns this is one of the stronger indicators in terms of a potential bottom.
However, because this candlestick pattern is composed from only two trading days a confirming candle is required to take the signal. Confirmation for this pattern would be shown when and if Monday’s candle contained a higher low and a higher high than the previous candle, and at the same time is a green candle meaning the closing price is above the opening price of that particular candl
Wishing you, as always, good trading,