Hello and welcome to CantosCharts Masterclass. I'm Sandy Jadeja, Chief Technical Analyst for City Index. Welcome to another lesson in technical analysis and reading the charts. As always, this is simply for information and educational purposes only.

Well over the last few weeks we've talked about various technical tools, indicators and chart patterns and what we're going to do over the next few episodes is to really discuss which technical indicators and which chart patterns are useful in the current market environment. Today we're going to take a look at using technical analysis as well as chart patterns in a particular chart.

Now, we're going to determine the direction of a trend because that's really important. Whichever market you look at, the trend is a key element and then we'll take a look at the psychological levels. Where are the key numbers that a particular market is going to be focusing on and of course, we'll use candlesticks for this particular example?

Now here we're looking at a chart of gold and this is a weekly chart and straight away we want to look at the obvious. The most obvious elements are that we have red bars and blue bars and the blue bars tell us when the markets are up and the red bars tell us when the market was actually down. But also we have key levels and I've marked off the highs and lows. Now we can see that the price of gold made a high at $993, then fell back to $916 and then rallied all the way up to $1,230 before pulling back at $1,050. Since then, the price of gold has reached a new high at $1,266 and this is on the August contract.

But what is it telling us right now because obviously we want to trade the moment? We don't want to look at the past history and say that's what has actually happened. The key thing as a trader is what are we going to do now and position ourselves for the next move.

Well, we'll take a closer look at this and the first thing we can see is that the recent price move had created something called a hanging man and that's something we've discussed in the past as the candlesticks chart pattern.

So the hanging man is a bearish pattern and that actually occurred at the top and that suggested that we could have a potential turning point and of course the last two weeks we've seen the price of gold fall back a little bit.

So three weeks down, now if you compare that to the past environment, we can see that from the $1,230 high we had five weeks of down movement before seeing another two weeks up and then another four weeks down.

So we can assume that if the market is going to follow a past pattern that maybe we have another one to two week's worth of selling in the price of gold. That's not to say that actually gold could move straight off from here.

So the first thing we want to notice is what is the current week's high and what is the current week's low. If we take out the high, then that would suggest that the low is already in and we may be heading higher for the short-term and our price objective would be the recent high.

Now adding some other elements, we add the 20 week moving average. That's always useful to have and I've also indicated the parabolic SAR, which is seen by the blue dots. Now straight away we can see we've got two blue dots on the upper side at the $1,266 level. What that told us was that it had broken the parabolic move towards the downside.

So as we approached the 20 week moving average, the price of gold may find support at the 20 week moving average, or if the parabolic is still in play, we may see lower prices. So the price of gold, it's going to really need a significant move back above $1,266 if we're going to continue towards the upside.

Now, I've got the daily chart here. I've always said that we should look at multiple timeframes. So on the shorter term timeframe, here to we can see that the parabolic SAR was being approached quite a few days back, about two weeks back. So that was alerting us that we might see a reversal.

Now we've broken to the downside. The psychological level of course, the round number would be $1,200. So once we broke the parabolic, we would be looking at $1,200 as the near term movement and of course we've reached there. We're even trading below that.

But also another indicator which I've discussed in the past is the stochastic indicator. As the price of gold made new highs, the indicator did not do that, so that was suggesting that there was a divergence. So again, there's another alert that even though the price was moving higher, there was the possibility that the price wasn't confirming that. So there was plenty of signals telling us that even in the up move we need to be aware that there could be a reversal coming up.

So we've also taken out the $1,221 low. What is our next price objective? Well, for the bears, it is going to be $1,168. So if the price of gold on the August contract trades lower, we could be looking at $1,168 as the near term support level and possibly trade even lower than that before we take a move towards the upside. So if we are going to see another one or two weeks worth of selling, then our focus will be on $1,168. Otherwise, we should be looking towards the 20 day moving average in terms of the upside price and really that's how simple charting should be.

Keep an eye on the normal technical indicators like the moving averages, the stochastic, the parabolic SAR and the key psychological price levels. If we do that, then we can simplify chart reading.

So the idea is to prepare for moves in advance with chart patterns and then of course trade in the direction of the trend. We have higher highs and higher lows, so the longer term trend in gold still remains up and on the short-term trend, on the daily charts, once we start seeing higher highs, higher lows on a daily trend, we can assume that both the timeframes are in sync. Of course, pay attention to the importance of support and resistance levels, the previous highs, previous lows and of course the psychological numbers. I like the parabolic SAR because that's quite a useful tool and it's worth having that on your chart.

Well I hope this lesson has been useful to you. I look forward to seeing you in another lesson. In the meantime, have a great trading week. This is Sandy Jadeja for CantosCharts Masterclass.