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

We're going to review a current market using what we've learnt in this series of technical analysis and chart reading because that's going to help us to apply what we've learnt in the real world environment.

So, I want to focus on how to use price action because that's really key. I've always said that price action is more important than technical indicators and we'll take a look at candlestick patterns because we've looked at that in the past as well, as well as observing the major trend.

Now here we're looking at the price of gold and this of course has been on many peoples' minds. We've seen a pullback on gold and people are now thinking is it time to get out; is price going to fall much further? Well we'll take a look at price action to see what the market itself is telling us.

Well recently we had gold reach $1,266 and there was something important happening in that area there. So I want to look at what exactly occurred at that price level to indicate what the next movement was going to be and to do that we're going to be looking at a candlestick pattern.

So in a previous lesson I did point out that we had a hanging man and that was suggesting that the market may reverse to the downside, so watch out for further weakness.

So in gold, on the weekly chart, we have actually seen the prices retreat from $1,266 and as you can see, price has fallen considerably lower, but something is also happening right now in gold. But in order to get to that stage, let's take a look at the shorter term timeframe which is going to be the daily charts.

Now, we also have on the daily charts a bear flag pattern, so I did alert you previously to say watch out, there's a potential bear flag here and that would indicate a continuation towards the downside and as you can see, gold did fall further and of course, recent price action has suggested that we've actually seen a correction taking place again towards the upside.

So right now are we forming another bear flag? In other words, the move towards the upside, is that a bear flag? Well if we start breaking below the recent low then yes, we could say that the current move is a bear flag and we could expect lower prices. Is that going to occur? Well, let's add some further information.

At $1,155 we had a southern doji and that was suggesting that at least on a shorter term timeframe that the market should be heading higher once we broke above the doji, so that's exactly what has happened.

Now the recent high at $1,203, that's where we're trading right now. If the bulls are going to be in control and the price of gold is going to go higher we really need to clear $1,203 and sustain that level by seeing higher prices. But what's also important at the $1,203, it's a psychological number the $1,200 region. We might see a little bit of a pullback over here, but we must stay above the $1,155, clear the $1,203 and form a higher low and a higher high if we are going to see higher prices.

But, short-term, we have seen the market pullback. In other words, we saw a drop down, consolidation, a further consolidation and then a move towards the $1,155, we had a southern doji and now we've moved higher.

If we add the parabolic SAR, that's giving us a slightly different piece of information. Now from the $1,266 you've broken the parabolic SAR, so that move was towards the downside, but right now on the daily chart the parabolic SAR has been broken towards the upside, so that's suggesting that we should start seeing higher prices.

Now, if we take a look at this weekly chart again, what information do we have here? Well, if we take a look at the longer term trend we've got higher highs, higher lows. If we take a look at the parabolic SAR, recently on the weekly charts the parabolic SAR has been broken towards the downside, so that's suggesting that the weekly trend is quite bearish. But we must continue to see higher highs, higher lows. So $1,155 on the short-term basis is important. If we break below that, that would be in line with the parabolic SAR, but the key important level is the $1,050 level. If we start breaking below there, then that's suggesting that at least for the intermediate term, gold prices might be heading lower for the longer term.

So, on a shorter-term basis, it looks to me as if we're seeing a correction. So this move towards the downside is a correction, but we do need to hold that $1,050 level and I would like to start seeing a consolidation and a retreat towards the upside.

But also on the weekly charts we have the very last bar is showing us it's a bullish engulfing pattern, so that's telling us that the current week has engulfed the previous body of the previous bar and if we can close this week on a bullish note, then the following week, if we can take the high of this week's price bar out, we could start seeing prices move towards the upside back towards the $1,266. Otherwise we might even get some consolidation before the parabolic SAR retreats a little bit and prices catch up and then we see a breakout.

So, again, always observe the price action because that's the leading indicator and then use multiple timeframes (the weekly and the daily) to indicate what the intermediate term trend is and the short-term trend to have your buy and sell signals on and then of course pay attention to the important support and resistance levels and the psychological numbers. These are very, very important. The parabolic SAR, I've always used that as an indicator to suggest what the short-term trend is and that's useful and you might want to include that as part of your analysis.

Well, once again I hope this lesson has been useful for you. In the meantime, have a great trading week and I look forward to seeing you in the next trading lesson.