Silver is relatively strong in the world of risk these days

November 16, 2012

There is a Bullish Inverted "Head and Shoulders" pattern on the daily chart. What makes this pattern so attractive on the next breakout above 32.94 is the fact that all of the Open Interest that was put on to the short side of the contract in Silver over the past month will be in the “red” and feeling pressure to exit the trade before it gets too late. Traders who want to get long will begin feeling they are missing the boat on the next breakout and when they begin to move off the sidelines in what is known as the "Initiative" type trade, we have potential for an "Igniter Move" in price and volume. Igniter moves increase the probabilities for sustained vertical development.

I am also looking to build a position in Silver for the reason of "relative strength" in the world of risk recently. Comparing the chart in Silver to one in the S&P 500 over the past month is glaring. Combine this with the increasing probabilities for a new trend on a breakout from the neckline of the bullish pricing pattern makes me comfortable here in taking risk for profit.

I would like to see the lower trendline support on the 1 hour chart hold (see left hand side chart below), or fail to follow through to the downside on a break which would be a sign of weakness in the Bears inability to push lower. This would further increase the probabilities of a short squeeze developing in Silver.

There is no prediction here. A "Trade Plan" is about preparation first and foremost and then patience in execution.

For me, preparation begins with correctly identifying the phase of development a market is trading in the big picture. Execution is about finding a favorable trade location in regards to the probabilities for a positive outcome measured to the reward and risk taken over time. As always the correct money management, risk management and position sizing principles must be proper in relation to account size in order to avoid ruinous losses.

(See chart below)