Silver gets blown out

Scott Pluschau
Wednesday, February 29th

 Yesterday's title of my post on silver that the shorts were playing with explosives was not meant in this way. This was a nasty TNT explosion to the bulls.

Here is the link:

There is a lot to learn here in my opinion. Let's start with risk management. If you day trade with leverage, you better have a good exit strategy. Next, there is no way I could short silver today due to the structure of the daily chart, it's that simple. Getting three points short on 5,000 ounces per contract, with the structure of the daily chart is fantasy land. Sure someone may have gotten it, but someone also wins the Powerball lotto. I believe it is a negative expectancy trade taken repeatedly over the long run. If I hit the jackpot, I would walk away. I don't swing for homeruns, I'm not trying to make money quickly, I'm in it for the long run.

As for the last pattern I touched on yesterday, once the bull pennant had the breakout and then failed, there were no more trades for me, until a new bullish pattern would have developed. Even though the bottom of the pole is a good target when a flag or pennant fails, I'm not interested in commodity trades that go against the current. The stop beneath the pennant getting taken out resulted in a loss of $775 per contract.

What today shows is again how failed patterns are very strong signals to go the other way. However I believe it is better to save capital for another day, especially when I get the reverse scenario. What I mean is I would have been more interested in a bearish pattern developing intraday in silver, and when it failed, to then get long, with the current of the larger degree timeframe.

The volume today at the close of the comex is greater than the open interest for the May contract, which say's a lot. I know the conspiracy theories, but when it comes to day trading (not investing) it is best to stick with the study of the auction, and when everything does not line up, either exit or stay on the sideline.

With that being said, as I write this, silver has found support at the balance area on the daily timeframe. See right hand side below. My bias is still to the long side as long as we stay above this consolidation area. Should bullish patterns develop, I will not hesitate to get long intraday again. But position sizing will be conservative until we get above $37 again.

If silver breaks below $33, then I would begin to look for favorable trade setups to the short side.


Follow me on twitter/ScottPluschau