Charts show silver now follows gold, so traders can predict moves

Jagdish Agarwal | Dinodia Photos | Getty Images

There was a simple and profitable trade from early 2013 until recently; Traders watched the behavior of silver and then executed the trade in gold because silver price behavior led gold's by about 5 to 10 days.

But those times are over. The price relationships on the gold price chart look similar to the price relationships on the silver chart.

Traders are asking if the smart trade is to now look at gold, and then execute in the silver market. If this reasoning is correct then the silver price should be poised to replicate the strong breakout we have seen with the gold price.

The most important similarity is the fan trend-line pattern on both charts. The silver chart has three fan trend lines versus the five fan trend lines on the gold chart, although the fan pattern in silver is not as strong.

The second similarity is the relationship with the Guppy Multiple Moving Average (GMMA) indicator. The long-term GMMA group of averages is beginning to compress, which is an early indication of a sustainable trend change.

We also see a similar pattern of test and retest as the short-term group attempts to move above the upper edge of the longer term group of averages.

The first resistance level is near $18.70. A move from current levels gives a 26 percent trade profit, which is better than the 16 percent from the similar breakout in gold. The similarity in the patterns on the two charts sets up the silver trade to follow the behavior of the breakout in the gold price.

Now the simple trade is to watch gold and execute the trade on the same price move in silver, as the silver price follows the lead set by gold.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, available from www.guppytraders.com.. He is a regular guest on CNBCAsia Squawk Box and a speaker at trading conferences in China, Asia, Australia and Europe