Trading gold from the beginning of July through mid September has definitely been bearish.  However, the remarkable aspect of this trading is that candlestick formations could have predicted the downfall – giving investors an opportunity to profit from the sharp drop in price of approximately $200 an ounce.

At its peak in the beginning of July, certain candlestick formations appeared, predicting the subsequent fall in prices. 

The primary goal of any tool available to the investor by technical analysis, such as candlestick pattern formations, is to better identify possible changes in the direction of price movements. 

Candlesticks are particularly well suited for this type of activity, as they offer important insight as to what market participants are thinking.  This technique, originally formulated in the 19th century Japanese rice trading markets, offers a trader the ability to recognize changes in market sentiment.

The candlesticks clouding the shine of gold

When bearish reversal candlestick patterns, such as Abandoned Baby, Dark Cloud Cover, Evening Star, Three Outside Down, and other patterns begin to appear in a historical price chart, such as gold, these are strong indicators that the market will go through a bearish reversal. 

Some of these patterns did appear prior to the reversal that occurred in gold in the beginning of July, 2008. 

The greatest advantage of using candlestick patterns is that they allow for a visual and graphic view of market psychology, which through practice and developed expertise, allow the individual investor the capability to predict changes in the sentiment of the market and thereby reversals of price action. 

Proper recognition of these reversal patterns will allow anyone the opportunity to determine optimum entry and exit points.

The recent price action in gold has been clearly downward and confirmed by the candlestick formations that have appeared. 

Continuation candlestick patterns implied that the underlying established trend would be maintained.  The continuation formations allow the experienced candlestick trader to differentiate price action that suggests a reversal from those that merely reflect a pause in the underlying established trend. 

Bearish continuation patterns, such as Downside Tasuki, Tree-Lined Strike, Falling Three Methods, Thrusting, Side by Side White Lines, and others, are formed during bearish trend movements.  Many of these patterns are easily observable during this July to September 2008 trading period for gold.

Has gold reached a plateau?

The formations that have arisen to date for gold clearly indicate that prices will more likely than not continue to drop.  Until such bullish candlestick reversal patterns, such as Abandoned Baby, Morning Doji Star, Three Inside Up, and Three White Soldiers, begin to appear, the likelihood of a reversal in gold prices will be slim. 

The underlying fundamental reasons gold has been slipping are clearly because of the strengthening dollar and weakening oil prices.  The candlestick price formations reflect these fundamental reasons in a graphic and visual fashion on a historical price chart.  Candlestick price formations can allow any individual trader and investor in the gold market the opportunity to assess the psychology of the market and pinpoint high probability entry points for successful trades.