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Silver Wheaton Corp. Message Board

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  • chemaes44 chemaes44 Jul 7, 2009 8:46 PM Flag

    OT- Natgas

    Ouch is right! I was thinking about posting a topic like this today but you beat me lol.

    As I mentioned before I borrowed a strategy from the options guys, called a straddle.

    Basically, I was long at say $6/ unit and I did not want to loose the position by liquidating in the face of POTENTIAL turning point. Why? if it didn;t turn and it went up, I'm riding incremental increases up from $6 vs a chased buy in higher than $6, say $6.5. Never chase.

    By taking both the short and long position at the potential turn, I neutralized my losses or gains, until the direction was clearly determined. Also, using this I also locked in the best buy-in price for incremental gains whether it went positive or negative.

    I'm up a good number of points on the short ETF due to this. I averaged in on the short position the next day ( bought more short five days ago, breakdown was six days ago) with my liquidated long from the previous day.

    I don't think I can call myself a swing trader anymore, I'm more of day trader now..lol

    I'm troubled by the divergence of the silver chart from the gold chart. The silver chart shows a breakdown but gold remains within its positive channel.

    The next few days will be interesting.
    chemaes

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    • Chemaes,

      Thanks for sharing your logic, that’s helpful. That is a good strategy for turning points. I got suckered into thinking there was some “value” associated with a commodity putting a floor on price. Ultimately, I still believe that is the case, I just hope the time decay in UNG doesn’t kill that idea. Was also buying the idea that this breakdown was a last washout as part of the bottoming process. If I am counting back the days correctly you identified the breakdown on 6/29, which looking at the chart is quite impressive. It is always easier for me to see things when looking back in time on a chart. Yet, looking at natgas or UNG now, I would have been hard pressed to say it broke down until 6/30. Obviously, it would be nice to identify the breakdown that early, so I am wondering what you saw to convince you to pull the trigger. Lately, as I look back on charts such as UNG, in hindsight I am wondering why it wasn’t obvious to me that UNG was breaking down and the right thing to do was get out. It is definitely difficult to transition into a trader mentality, been working at it awhile but still don’t have it. Probably that mentality, I am right and don’t want to take a loss, it will come back. Oh well, Rome wasn’t built in a day.

      I have also been noticing the weakness in silver. I have mentioned before I respect the opinion of Bob Hoye, who has been saying that a rising gold/silver ratio signals distress in the financial system and portends the onset of the next wave of credit contraction. That ratio looks to be breaking out to the upside. In fact, this is why I have been searching for hedging strategies. I will have to contemplate for awhile what you have done with natty and how I might apply similar strategies to my portfolio. I think you are right, Gold is one tight spring bouncing around between 920 - 940 and something is going to happen soon. Hmmm, maybe I should brew a pot of coffee. Thanks again for sharing your thoughts.

      • 1 Reply to ballhead59
      • Hi Ballhead,

        I don't play UNG because its a US entity, but here's what I would've been watching for in a price break down.

        On April 30th the price low was 12.69.
        On May 26th the price low was 13.29.

        Funds trade by certain moving averages. Plot a graph with a 5 day moving average, 10 day and 28 day. THese are common.

        If you draw a tangential line through the prices of April 30th and May 26th, you'll see that they intersect with the 5 day moving average roughly 6 days ago.

        traders look for strong support zones and resistance zones. the more technical items that converge at certain price points, the more it will be looked to as a strong resistance or support zone.

        In this case, a trend line created by the two dates given (it was really 3, but I left out one for simplicity, bank technicians look for 3 points to make a trend line), intersects with the 5 day moving average. This marks a strong support zone.

        Any close below this price intersection point by more than 1% to 2% constitutes a price break down. On the day in question, there were movements down in price of 4% and roughly 2.5%. That is a break down with follow through, signifying a significant trend change is taking place.

        To be honest, any predictions beyond two to three days is rubbish right now because the PM's are stuck in a trading range. Currently, I'm seeking direction from commodity currencies and the euro. If I see something significant there, I will adjust my strategy on PM's

        good trading
        chemaes

 
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