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Open Price as market sentiment gauge: Gold price bullish Silver not

Open Price as a gauge of market sentiment

Previously I wrote of opening price as a technical support resistance. It is also great as a gauge of market sentiment. Concepts of market sentiment based on Open Price come from candlesticks.

There are two reasons that makes Open Price very significant:

  1. It cannot be re-printed like some indicators do so it works very well with rule-based trading strategies.
  2. Open Price can be defined as the starting price of the year, month, week or day or any lower. It becomes a very powerful anchor for traders who need to deal with multiple time frame analysis and can suit anyone’s trading plan.

 

Gold price now bullish

We can see from this daily chart of XAUUSD that mostly falling Gold price can be interpreted in two ways:

  1. Down trend is dominated by lower week-to-week highs. (Lower lows are taken for granted in a down trend but highs reveal more about the ability of bulls to push price up).
  2. Month-to-month price is mostly bearish since they close below the Open.

 

A completely bullish reversal type of technical picture that can convince investors and traders to enter the long side must therefore look like this:

  1. To reverse the down trend of lower week-to-week highs price must make a Higher-Week-High followed by a Higher-Week-Low.
  2. Show us bullishness by trading above the Open.
XAUUSD price action

In this chart of Gold, blue boxes show weekly prices while green lines show opening price of each month

Although we do not have the first condition, the second has presented itself. Price dipped below this month’s opening level at $1233.93 but formed a V-shape and is now bullish. As long as price can build a base above $1233.93, there is a chance for it to go higher. It is not a buy signal, there is no bullish reversal pattern but bullish investors and traders have hope.

 

Silver is weaker, not bullish because conditions not met

The picture of Silver during the same period of time is very clearly down trending. Apart from Week 7 in the chart below, Silver had 23 weeks of falling highs since price started expanding downwards late January. Until this trend is reversed no one can truly be convinced that price of Silver has reached bottom. We also know one other additional fact: that market sentiment for Silver is weaker than Gold because it was not able to overcome its own Open Price of $19.536 established at the beginning of July.

XAGUSD price action

Silver has a near unbroken trend of falling highs for 23 weeks

 

Summarising everything

  1. Open Price is a good indication of market sentiment
  2. There are no signals to buy gold and silver
  3. But Gold is more bullish now than the beginning of the month

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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4 thoughts on “Open Price as market sentiment gauge: Gold price bullish Silver not”

  1. jeannie says:

    Thanks for highlighting this. TX Alert has recommended a buy entry for Silver at 19.23 though..

    1. Soh Tiong Hum says:

      Hi Jeannie, you are welcome. Take note that this is a H4 upflow signal but is counter-trend. Trading gives best results when you apply with-the-trend signals.

  2. Daniel Ku Guet Liang says:

    I have failed to look at price in relation to Opening price to gauge the sentiment & now I mark them in my charts. This blog and a few blogs subsequently shown me how important it is to use such sentiment gauge to support entry/exit (not trigger but supporting case). However, marking the monthly open, I observed that it is not fast enough to spot changes in sentiment. I have also attempted to mark the week opening too, which helps to me to spot early but I am aware that there could be a pitfall of false signal. I dont think it is wise to do day open as that would give too much noise. Is it wise to take into account week open in addition to month open? Appreciate your input. Thank you in advance.

    1. Soh Tiong Hum says:

      Hi Daniel, ignorance is a danger but so is looking too hard. If you put in too much information, it may immobilise you. Bear in mind you are looking at the value of Open Price as both support resistance as well as market sentiment indicator. I suggest you may want to write down in detail how you plan to use them and send it to me. This is how I would go about:

      1. Consider whether the rules are sound based on principles
      2. Do some back testing to see if it fits your current trading plan

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