Staying ahead of the elusive upward curves

The gold chart brings together many behavioral features that help investors make better decisions. Technical analysis of price activity uses statistical analysis methods. Chart analysis uses chart patterns to understand the behavior of market participants.

The daily New York Mercantile Exchange gold chart shows three significant patterns. The first pattern is the parabolic trend. This develops when investors become increasingly excited about the market. These rapid rises are unsustainable and when the price retreat begins investors very quickly panic. They chase the market down, selling at any price because they are desperate to lock in a profit. It is a type of bubble pattern but it has the added advantage of signaling when the trend will collapse.

The move to the right of the parabolic trend line leads to a sudden and severe collapse. The gold price lost 13 percent very quickly. The recovery from this fall leads to the second behavioral pattern: the inverted head and shoulder pattern. The first rebound rally develops when impatient investors believe the market has fallen to good buying value. This buying creates the first inverted shoulder of the pattern.