How to Determine Risk/Reward Ratio on Your Trades (Part 4)

07/23/2009 12:01 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

The next set of obstacles is a bit more formidable. There are a series of prior highs that range from the high that formed the B pivot of the current magenta, Schiff Median Line and two prior swing highs further to the left, all ranging from 919 to 920.

Do you think price will stop at this clump of prior highs?

Let's see what's above these highs to the left:

chart
Click to Enlarge

If price makes it past the 919-920 area of resistance, there are three swing highs that made up the cascade highs on the major downtrend. These swing highs come in between 930 and 933, and they look a bit more serious to me.

Have you decided where you would put your profit order if you were long gold futures at 907.80?

Wait…I forgot one last possibility! Median Line theory tells us that price should run out of upside directional energy at the blue, up-sloping Median Line, and that once price begins taking out swing highs after testing the blue, lower Median Line parallel, it should reach the blue Median Line about 80% of the time.

So, what's your profit target? You're long at 907.80. Do you think price will stop…

  1. At the recent spike high at 915 1/2.
  2. At the cluster of highs between 919 and 920.
  3. Somewhere between the three cascade swing high tops (the 930 to 933 area).
  4. At the blue, up-sloping Median Line, currently just below 940.
Tomorrow in Part 5, we’ll look at one last thing before we see if you chose the right profit target.
 
Read Part 1 | Read Part 2 | Read Part 3 | Read Part 5

Timothy Morge

timmorge@gmail.com
www.medianline.com
www.marketgeometry.com

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