Silver markets test major round figure

Kate Leaman Kate Leaman

2 April 2019

Silver markets fell initially during trading on Tuesday, breaking below the crucial $15.00 level. That’s obviously a level that was important more than once as you can see on the chart, but beyond that it is a large, round, psychologically important figure. That being the case it makes sense that traders are a bit back and forth during the session.

Large round numbers

While it sounds completely ridiculous, a lot of money flows in these large figures such as $15.00, $16.00, and the like. It seems a bit too simple, but a lot of it comes down to order flow. Remember that some traders are out there with massive positions trying to get an average price. They can’t come in and buy huge amounts of contracts in the silver market without moving it against themselves. Because of this, they simply go long or short at these levels every time we approach it. They are playing what would be known as the “long-term game.”

For us retail traders, that gives us an advantage as we recognize that these levels can cause a reaction more than once. This is what is known as “market memory.”

Buyer stepping in?

During the Tuesday session we started to see buyers jump back into the silver market just below the $15.00 level, and on decent volume. Because of this, longer-term traders seem to be defending the $15.00 level, and the shape of a candlestick is starting to show that. That being said, the question is whether or not it’s driven by longer-term buyers, or is it driven by short sellers that are trying to take profit? We don’t know that yet but it certainly looks as if it’s an area of importance regardless.

silver chart

Silver daily chart

US dollar

 

One of the biggest problems with silver and other precious metals for that matter lately has been that the US dollar has been strengthening. As the EUR/USD pair is approaching the 1.12 level, we are starting to see some resiliency by the Euro. This should help silver as the Euro is the largest market when it comes to trading the greenback. If you have the ability to watch the US Dollar Index live, that could also give you an idea as to what could happen with the precious metals markets. For example, the 97 handle continues to be crucial, so if we were to break above that it would show significant US dollar strengthen that would almost certainly be shown by precious metals selling off.

 

Two scenarios

 

Currently, it looks like we are trading what could be thought of as a “binary position.” If we break above the top of the candle stick from the Tuesday session, which is looking more like a hammer than anything else, that’s a bullish sign. We would probably go looking towards the moving averages above near the $15.38 level. However, if we were to break down below the bottom of the range for the Tuesday session, we could start grinding down towards the $14.50 level underneath. In that sense, it’s a bit of a binary decision, and that simply breaking out of the range for the Tuesday session tells us where to go.


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