Gold Trading Boot Camp: How to Master the Basics and Become a Successful Commodities Investor

CHAPTER 32

Trend Identification Techniques—Momentum, Timing, and Trading the Trend

If Gold were to be higher today than it was 200 days ago, with the 50-day rate of change hitting a new high for the past 200 days, and the 100-day rate of change hitting a new high for the last 200 days,... and the 50-day rate-of-change was doing the same,... all while the 52-week rate of change and the 104-week rate of change indicator were both accelerating and making their own new highs,... I’d be more than tempted to define gold as being in an uptrend.

Digging in deeper, I draw on the groundbreaking research done by legendary author Welles Wilder to determine the trendiness of a market by defining the movements in trading ranges relative to previous trading ranges. I speak of Welles Wilder’s Directional Movement Index system.

A market that gaps higher on the opening and does not close that gap throughout the day will, by definition, have a daily trading range that is outside and above the previous day’s trading range. A value can then be assigned to that type of move, based on the relative price changes and ranges. This thought process can be applied over a variety of planes, from the time periods that might be compared with the definitions used to determine when an outside-the-range move actually occurs.

In its most simplistic, raw form, it would work like this:

An inside day would be given a value of zero, indicating no trend-push outside the previous day’s range.

On the other side of the coin, ...