Gold.... "Order arises out of chaos"

In spite of the recent volatility and lack of direction in the Gold futures market, I decided that it is time to dedicate a special blog post to it, try to make sense of it all through the perspective of a classical technical analysis chart pattern.

While observing the price action in the last 2 months (see the chart attached), a few things become clear - the market looks quite chaotic and random at first sight - it is volatile, unpredictable, the zones of support/resistance do not act as such, the market makes lower lows and higher highs, both bulls and bears seem unconvinced about direction, volatility is expanding. If I was just entering into trading, I'd say - "Screw this, this is a manipulated bullshit market, there's no way anyone could trade this, it just doesn't make any sense!"

It's been long enough to know that after every period of randomness and indecision, a new pattern starts to take shape sooner or later. "Order arises out of chaos" - every theoretical physicist who knows the ways and the patterns of the Universe will tell you this, I can assure you markets are no different! There is randomness to some extent but if you observe it on a long enough time frame or if you just zoom out, you'll see well-structured patterns starting to take shape.

. when it suddenly hit me! Damn, I've seen this pattern before! I even remember its name - "MegaPhone" or "Broadening Top"! It is a very rare but extremely reliable pattern identifiable by series of higher highs and lower lows with expanding volatility.

Here is a more detailed description:  

A Megaphone Top, also known as a Broadening Top, is considered a bearish signal, indicating that the current uptrend may reverse to form a new downtrend. 

A Megaphone Top is formed because Gold makes a series of higher highs and lower lows. The Megaphone Top usually consists of three ascending peaks and two descending troughs. The signal that the pattern is complete occurs when prices fall below the lower low.

The creation of the pattern reflects a period of time when bulls and bears are battling to gain control of the stock. The pattern occurs after the bulls have been charging and driving the stock price appreciably higher. During the formation of the Megaphone Top, however, bears are exerting increasing influence on the stock and causing it to set a series of lower lows. The increasing volatility eventually creates a sense of uncertainty, leads to profit-taking, and deters some of the bulls from making any further commitments.