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Another interesting example developed in late November and early December 2009 when for two weeks, gold popped above the Starc+ band at $1207.95 and hit $1227.50, point 10. This correction was discussed in detail in this recent Trading Lesson, and as noted, gold traced out a nice triangle formation by February 2010 and came within $40 of the Starc- band (point 11) before the correction was over. When either band is reached on both a weekly and daily basis, the signals are even stronger.

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For example, on May 13, 2010 (point 1), the December 2010 gold contract moved above the daily Starc+ band, and if you look back at Figure 1, this corresponds to point 12, as gold also came within $16 of the weekly Starc+ band.

Just one week later, gold was back to the daily Starc- band and stabilized for a few days before again turning higher. This sideways period lasted into August, and in early July, the Starc- band, point 3, was again tested, setting the stage for a brief bounce before gold declined further.

On an hourly chart, this bounce was clearly a continuation pattern. In October, the daily Starc+ bands were tested twice in less than a week (points 4 and 5), and this coincided with gold just matching the weekly Starc+ band, as noted at point 13 on Figure 1. Therefore, this was clearly a high-risk time to be buying.

After the ensuing correction, gold dropped $70 from its highs and reached the lower daily Starc band (point 6), presenting a lower-risk time to buy. Just two weeks later, gold was again making new highs near point 7.

The same Starc band formula can be used on any market, no matter how volatile, and as an example, let's look at Silver Wheaton (SLW), a stock with a beta of 1.56, which means that it will move just over one-and-a-half times as much as the overall market.

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SLW bottomed ahead of the overall market, as it turned higher in late 2008 and reached the Starc+ band at point 1. Then, on the week ending July 11, SLW approached the Starc- band (point 2) and held above the major 50% retracement support level. Therefore, this was not the time to sell and actually turned out to be a more favorable time to buy, as SLW turned higher the following week.

There were two other instances in 2009 when the upper and lower weekly Starc bands were almost reached, points 3 and 4, and in both cases, prices reversed. In May, the weekly Starc+ band was tested (point 5) before SLW formed a trading range. As I mentioned earlier, this frequently occurs when prices test either of the Starc bands before tracing out a flag or triangle formation, which can take up to ten or 20 bars before the trend resumes. I have highlighted this period with a square labeled "a."

After SLW broke out of this formation, it tested but did not exceed the Starc+ band for five consecutive weeks before consolidating and moving back to the six-period moving average (circle b). Within four weeks, SLW had moved above the weekly Starc+ band.

NEXT: Using Starc Bands to Time Short-Term Entries