We deal in probabilities, not certainties. So, we try to get the probabilities on our side on a trade.
Right now, we have what seems to count well as a 5 wave decline on GDX, followed by an a-b-c rally, which I am counting as a 1-2 downside set up.
We also look to the technicals for guidance. As you can see on both the RSI and MACD, we see the a-wave rally had the strongest technicals, with the c-wave rally striking a higher high in price, yet the techs have seriously lagged in strength, providing us a lower high on the techs. This often supports the count as presented.
So, while, in my estimation, patterns like these follow through in the set up approximately 70-80% of the time, it means they invalidate 20-30% of the time. But, since we have such a high retrace, the region in which we can be wrong is only up to the point of the wave 1 start - which, in this case, is 24.94.
Again, this is what I USUALLY consider a high probability set up under normal circumstances, especially since we have the technicals supporting the count.
However, the reason I am not shorting right now is twofold. First, I already have enough hedges in place for how I would want to be positioned for a 5th wave. Second, since silver does not share the same IMMEDIATE downside set up, I am a bit more cautious than normal, so I will wait for the next i-ii of wave 3 down set up to attempt a short.
Just a quick lesson as to how I look at the market.