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Silver: Trading the Major Downside Breakout


On September 19 the price on December silver futures broke below triangle support, indicating a further slide.

Based on the size of the triangle the downside target for the breakout is $13.25. That gives enough room to enter a trade near the current price ($17.49), place a stop above $19, and still make a profit that is almost three times as large as the risk (if the target is reached).

Alternatively, wait for a pullback between $18 and $18.50. This will provide an even better reward-to-risk on the trade.

Figure 1. December Silver Futures (SI) - Daily Chart

silver-1.jpg

It should be noted the "traditional" way to trade a triangle is place a stop loss above the opposite side of the triangle. That's near $21, and gives the trade excessive risk. If the price moves back into the triangle to a significant degree something is likely wrong, so cover the short. Even consider getting long, because the downside breakout just failed and silver bears will start to panic. If the price creeps above $19, look for the price to continue to move back toward the top of the triangle at $21.

Also trade silver via Mini Silver futures (YI).

 

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