This is Tai Zen – currency analyst for PrisonOrFreedom.com – a free blog where we talked about the tools, the techniques, the strategies and the technologies that are available to help people find more freedom in their health and wealth and their relationships.
In this episode of Currency Analysis, I want to discuss “When is the best time to buy silver?” In today’s objective, I will analyze:
- The trend in silver to determine the ideal entry point.
- How to determine your stop-losses once you start investing in silver.
- How to estimate the profit potential of silver.
- How to calculate your risk to reward ratios.
- How to handle the nasty “shakeouts” that you can expect the big banks and the big institutions to do in order to shake out the little guys, like us.
- How much silver you should buy and how to scale into your silver positions.
Let’s start by analyzing the trend in silver to determine the ideal entry point. To do the trend analysis of silver, I will be using a website called TradingView.com, one of the better websites I have seen to do your price analysis. The tools are very simple to use on here.
I am using the silver price data feed from the broker up here called FXCM, they are the biggest retail Forex broker in the world right now. I am using their price data feed through TradingView.com. It doesn’t matter where you get your price feed at because the analysis I’m doing will be a long-term analysis, so if it’s off by a few cents it’s not a big deal.
On this chart, I will go ahead and zoom out so you can see that I have two of the dark green lines represent the long-term trend or channel of the price of silver going back all the way to the late 1990s, where the price of silver was around $5 and then it ran all the way up to $49 up here and then now it’s fallen back down to the $16 price range.
On this chart, you will notice that I have two pairs of lines, a pair of dotted blue lines at the bottom between $8 and $10. And the second pair of dotted lines between $14.50 to about $16. And these numbers are just rounded off, guys, so that I don’t waste time reading out the exact cents or decimal places and you can look at the screen itself and get the exact prices.
For general purposes and discussion, I will just be using the fairly whole even, round numbers rounded off to the nearest even number so that’s easy to just discuss and talk about. If we look at the past, this is where the price originally took off from near the $10 area, right below $10, it skyrocketed all the way up to almost $50.
Now, the price has come back down here. Now, a lot of people say that this run-up in price was due to manipulation and stuff, but regardless of the cause of this price run-up, I just want to analyze the trend. And then we can discuss the cause of the manipulation in the price silver a little bit later on.
Here’s the trend, so what I did was I just drew a thick, solid, green line where it was touching the previous points, and it is touching this area from back in the late 2008 and now prices come back down to that uptrend line.
And the top dark green line just represents a parallel line in relationship to this dark green line down here. So just keep that in mind as we do this analysis of which lines are which. Now I draw it, originally, I was waiting for the price to come back down near the $18 area, so I can start buying into silver, but I noticed that as it came down to here, it took a bounce up.
And I wanted to retest that support level of $18 at least one more time before I got in and I wanted to make sure that it broke this downtrend line, this intermediate term dotted trend line right here, this purple dotted line.
So when the price broke above this, on this long, green candle, right here, that’s when I bought my first investment in silver on the long side because prior to that, I have been shorting paper silver throughout this paper silver.
But now I’m looking to buy some physical silver around this juncture. Unfortunately, it turned around and came back down which is running into my ideal buy point for silver.
This dotted pair of green lines was drawn here because this represents the low of which this price went up began. They had to test this before it came up and this is very common if you notice that this support line was tested right there and it was tested around this area again, right here and right here.
Most of the time when you buy large quantities of anything, whether it’s a stock, a currency, or a metal, usually what the institution would do is that they will scale in into multiple positions.
They have an area that they determine is an ideal price point between this amount to this amount, and then they will start accumulating shares, or currencies, or metals at that point.
As a small individual investor at home, we want to copy what the big institutions do. They do not buy their quantities of any amount of stock, or currencies, or metals at one set price.They always have a range of prices in which they ideally would buy their securities or their products, and then they average out that price.
Based on that principle of how the big banks and the big institutions are buying and selling to move the price in the markets, we want to copy that whenever possible.
I have here this pair of green lines, and I put that this is the ideal buying point, in this area between $14.50 or $14.62 to about $16 simply because that is where it meets the long-term uptrend line which is represented by the dark green line. As you can see when it comes here, this is what we call a confluence of support in resistance and a confluence of a trend line.
A confluence simply means when two factors come together in the same place. So the price happens to be hitting the uptrend line which is this dark green line and it also happens to hit this area of support represented by these two dotted green lines. And so this area is an area of the confluence, and this is what I would suggest that would be the ideal buy point.
Now, what happens is when you’re buying here, once we analyze this we want to also figure out if we buy it right here, where do we get out at? Ideally, we would get out below this dotted green line, the bottom portion right here. If you are an aggressive investor and you have extra money to invest and you like to take risks, then ideally you would probably want to start accumulating some silver closer to the top of the dotted green line.
If you’re a little bit more hesitant, you’re not sure, and you’re more risk-averse as an investor, then you will probably want to buy when it’s near this bottom dotted green line. The lower dotted green line, I mean, near the $14 price point. I am going to buy at $16, $15 and at $14 as the price goes in so that I can get my prices around the $15 average price.
So, now, just in case –I might of kind of jump ahead to this next slide– just in case that you get shaken out, which means that the institutions will more than likely want to push the price down a bit further because they know that a lot of people are looking to buy at these price levels based on their technical analysis.
What they will probably do is they will probably push the price down here to the $10 mark so that it breaks through that trend line just to shake people out— the weak investors, the new investors and the amateur investors that are not familiar with investing in silver.
The institutions will probably push the price down on purpose, because, keep in mind, they can do this with the price of paper silver because it does not cost them anything to sell it short or to sell silver. Okay?
Unlike us individuals at home, we actually have to take our hard earned money and our cash and convert it and buy silver, whether it’s paper silver or physical silver. That just simply means paper silver is the contract of silver and physical silver is the actual physical metal itself, whether it’s in bars, bouillon, or coins.
Those are the two ways that us individuals, us small time investors at home are able to buy silver. Now, we do not have the ability to just hit a button on the computer and just sell as many contracts of silver as we want without putting up any money like the big banks and the big institutions do because they have the ability to print paper silver, just like they do with printing paper money, and they can do that at will.
So it’s more than likely they will print more of it and then push the price down to here just to shake out the people who were planning to go along here. And that’s okay. I’m willing to accept that kind of risk personally. If you are not, then I would wait till it breaks through this thick green line, this uptrend line first before you start buying in.
Now, if the price of silver does break through the dotted green lines due to the institutional shakeouts, to shake out the little guys like us, then the next ideal point would be where these two dotted blue lines are at. Now if you look closely, these dotted blue lines, the bottom line has been tested multiple times throughout 2004 and then it has been retested again in late 2005 and in 2006 at the top blue line and then so far over here.
So this would be the next range in which it would be ideal to buy into silver, between $8 and $10. Now if the price ever reaches down to here, then I will really, really load up on physical silver. Now, between the $14 and $16 range to the $8 and $10 range in this area right here. This zone right here or this open field, I would not look to buy anything here. I would either buy it here or wait until you come down here and buy down here.
This area right here is not a very comfortable area for me to buy simply because there’s not a lot of support and resistance here that I see through the past. So that would be our current analysis and obviously, if we buy here, we are looking for it to go up and hit the other side of the trend line up here, to the upside where it’s back up to the $49, $50 range again.
If you are buying paper silver it’s a little bit different from physical silver because when you buy physical silver, even when the price goes against you and you lose the price on the physical silver, at least you still have the physical silver itself. In other words, if you buy an ounce of silver, physical silver, when the price goes down, you still have that ounce of silver and if you are okay with that then it does not matter to you. If you are buying the paper silver of the contracts, whether it is the futures contract or through the spot Forex market, however you buy it, or through the ETF SLV, it does not matter.
When you buy the paper silver, and then the price goes against you, there is a loss in it and whether you buy the silver, the paper silver or the physical silver, you still want to have a price in mind of when you get out when it’s going against you unless you have other reasons, and I’ll explain that in a minute. If you buy silver between $14 and $16 here, and it comes down against you, I would say that once it broke below this bottom green line here and it hits the price point of $13.75
I would look to exit that position if I were in paper silver or contracts of silver. In physical I might still hold on because when I buy the physical silver, I’m not just buying it for investment purposes, I’m also buying it for commemorative reasons.
I usually buy silver to commemorate the birth of one of my kids, or something that’s very big and major and life-changing that happens in my life, and that’s the reason I buy the silver, more so for that.
If the price goes against me, I’m okay with holding on to that physical silver simply because my initial reason for buying it was for commemorative reasons and second it’s for investment reasons
However, if you are listening to this, and you’re just buying silver strictly for investment purposes, then ideally you would want to get out of this silver position when it reaches about $13.75.
Then you would stay out of silver until it comes down into this next buy range which is between $8 and $10 and that’s when you would buy in again, and then you would put your stop-loss at $7.75.
Now, as long as it’s below this, it really does not matter where it’s at below this blue line, I just picked those numbers $7.75 because I know that a lot of people that are listening to this, they need to have an exact price. So that’s a very, very conservative number there, and it is a wide stop-loss and I agree with that for this lower range and this upper range as well.
But that way there’s a solid concrete number for the analyst and the engineers, and the people who like to crunch numbers so that they can get an exact price point and know for sure. And I set those stop-loss targets so far out that if it hits those points then you pretty much need to really get out of those positions. That covers the stop-loss portion.
The next part that I want to talk about is how to estimate the potential of profit of silver. So let’s go back to the chart here to the weekly chart. The way that I always estimate the profit on any trade or any investment is I look at the past. What I did here was I have two dotted lines here.
This dotted line represents the trend of the steep move and all I did was I drew it from this point to this point to hit this point and up. That’s the trend that I see of this big, huge run-up in price right there so I’m going to put that trend line over here and then I’m also going to do this as well.
I have a secondary trend line for the worst case scenario and this was the typical move in silver. You notice that when I put it right here, you’ll notice that this angle, this trend of the normal price run-up of silver is at a 40-degree angle, and if I put it over here as well you can see that it’s pretty much the natural trend of silver’s up at about a 40-degree angle.
It’s only when there was this manipulation in silver did the trend of silver go from a 40 degree to probably about an 80 degree or so. Let’s keep those two things in mind as we move forward in time.
This is called a price projection, and the way that a price projection is done is by looking at the past historical trend of silver or any security and then projecting it out into the future. So if the analysis that I did is correct, then the price of silver when it comes down to here, I would say that starting this grey line in about January of 2015, I’m going to go ahead and put the that right there where it hits the price.
And I’m also going to put the other purple dotted line where the price is going to intersect. In other words, I expect the price to go down and then come back up and when it starts to rise above, it will rise to start in January of 2015, or maybe not January so much, but sometime in 2015.
We want to know how long will it take before the price goes back up to the $49-50 range and based on this analysis I’m looking at a projected two years. If price shoots back up as it did at this angle, in the past during the silver manipulation, then it will only take two years to get back to its original $49-50 range.
However, if it goes at a steady pace as it did in history before the manipulation of silver, then we can expect the price of silver to take this longer term, about eight years to get here to the price of around probably around close to $60. That’s the projected time that it will take for silver to reach those price levels and what I want to do next is, now that we’ve discussed the potential profit of silver, let’s calculate the risk to reward ratios of silver.
What I’ve done here is I’ve created an excel spreadsheet, and this excel spreadsheet takes a look into the account of how much the entry price will be versus the risk. So if you want, just pause the video for a moment, and just take a quick glance at this, and I will go over it with you real quick.
Now let’s take a look at the price of the risk and how we can calculate this mathematically. I’m going to go through this one cell at a time, one row at a time so you guys can clearly understand this.
What we have here is a situation where if you were to enter the entry prices at $16, that would be at the top dotted green line, and then $15 would be somewhere in the middle, and then $14 would be at the dotted bottom green line.
The stop-loss for all of these regardless of which entry price, the stop-loss will be around $13.75 as I mentioned earlier. The dollar amount in the loss, on this particular, if you enter at $16 the stop-loss would be at minus $2.25. So for every ounce of silver that you get, you can expect to lose $2.25. This represents a 14% loss on your initial $16 investment.
However, if you look at the profit side and it goes back to the all-time highs of close to $50, then we can expect a profit of $34 and this a 213% profit which represents a nice and worthwhile risk to reward. You’re risking $1 to $15. This is very, very nice profit potential, in my personal opinion.
Now if you decide that you want to see the price go down a little bit further before you get in, and you enter at $15, then the stop-loss will still be at $13.75 because it’s below the bottom of this green line and your amount of loss will be $1.25 per ounce of silver.
This represents an 8% loss, now for some people that may be a little bit more comfortable, for them especially the people that follow the investor’s business daily by William O’Neil which they always stress a 7-8% stop-loss, if you’re those type of people then you will probably be more comfortable in buying silver at $15 than at $16.
Now the profit targets will still be the same, you will take profits at $50, which equates to a $35 profit amount and that’s a 233% profit on your initial investment of $15. That comes out to be a risk to reward of 1:28. Basically, that means that you are risking $1 to gain $28 which is a very, very good risk to reward ratio.
Now if you decide that you are not comfortable entering silver at $16 or $15 then there is the possibility that you can enter at the bottom dotted green line. At this support level which is $14 and the stop-loss will still continue to be at $13.75 and the risk on that will be $0.25, and if you are wrong on this there is only a 2% loss on this.
So for some of you that are very, very conservative and are very risk-averse you might want to wait until it comes down to $14 before you buy into silver. Again, the profit potential is still at $50, where you will take profit and the amount there is $36 but the difference here is that the percentage in profit is up 257% because you are risking $1 to gain $144, so that’s what the risk is there.
If you miss the $14 price point and for whatever reason, you are hesitant or if you got in and you got shaken out and you’re looking for the next entry point to get back it will be like I mentioned earlier, it will be between $10 and $8.
The stop-loss for all of these will be $7.75 right there and accordingly, this is the dollar amount loss that’s available for each of those entry points and these are the percentage losses that you will incur as you get in. Now before we move any further, you’ll notice that the percentage on this is a lot higher compared to if you got in around $16 to $14.
Now, I’m getting in around this area because the per cent loss, if I’m wrong, is a lot less than it is down here, despite the fact that the cost of the silver is a lot less. If you do the math, the percentage of losses are a lot less appear around, so I would prefer to buy silver at around the $14 to $16 range simply because of that.
Again the profit potential is still at $50 and based on that profit potential you have a $40 gain here, $41 and $42 gain respectively. The percentage of profits is anywhere between 400% to 525% profit. Now the reward around $8-10 is a lot higher than up here between $16 and $14.
So the risk to reward is also a lot more beneficial as well because you’re risking anywhere from $1 to gain $18 all the way as high as risking $1 to gain $168. So that, for a lot of people, including myself, those are a very good risk to reward ratios and I will be happy to take that kind of risk to gain that kind of reward anytime.
Let me go back to the slides over here to make sure that we covered everything. So that’s covering the profit potential of silver and we calculated the risk to reward ratio. We discussed how to handle the nasty shake outs already, and just to review that real quick.
In case you get shaken out here near the dotted green lines, then you will wait until it comes down here between the $8 and $10 range near the dotted blue lines and you’ll look to buy back in around that point.
And then, “How much silver should you buy?” is a very good question and “How to scale into your silver position?” is also a good question. I’m going to answer both of those questions at the same time, let me go ahead and remove that.
What I’m going to do here is I’m going to expand this a little bit and open this up, and I hope that you guys don’t mind that I am making this excel spreadsheet a little bit smaller, but I’m sure that you guys can…I’ll have it at the bottom of the blog post and that way you can copy and paste it and analyze it at your own time.
Here’s what we’re looking at guys, how much money should you put into silver? Usually when I invest in something such as silver or anything else for a long-term, and by long-term I mean that if I’m investing in something that I plan on holding for more than six months or a year, I want to invest an amount that’s not going to hurt my current lifestyle that if I lose it, it has no effect on my current lifestyle whatsoever.
For example, if you make $50,000 a year in the United States of America, $50,000 a year is just about the average salary for like a four-year college graduate in America. I think the average salary in America, right now, for a college graduate is in the mid or high 40s so $50,000 is pretty much normal.
I think the average is around 44 to 46,000 the last time I checked a few years ago. It may have gone up since then but it’s somewhere around there. If you make $50,000 a year and you invest $100 dollars into silver or you invest $500 or even $1,000 into silver, it’s not going to make a significant impact in your life if you are wrong and you lose all that money.
I always assume that if I lose all that money what’s going to happen to my current lifestyle. Am I going to still be able to put food on the table and things like that? So I always keep that in mind when I invest money into the stock market, into the currencies, into the metals, or anything else.
In this particular case, we have some stop-losses so the chances of us losing the entire initial investment of $100, the $500, or the $1,000 will be very slim. As long as you follow the stop-losses that I have outlined in this video.
Let’s just say that I put up here, initial investment of $100, $500, $1,000, I also have it for $5,000 and $10,000 and the reason why I say that this is because I believed that when you invest I want to, first of all, I wanted to make sure that I discuss different investment amounts that cover the wide spectrum of my audience.
I know some people listen to me from the United States, some people listen from Canada, some people listen from first-world countries, and others listen from third-world countries so I want to make sure that I include some numbers in here that will benefit everyone, regardless of where they are from.
If you are from a third-world country, investing $100 could be big but it’s probably not going to be a big deal for a lot of the first-world people that I’m in contact with. What I always look at when I invest into silver or anything else is I want to ask myself, the first question is “If I lose all that money, will it hurt me financially?
Can I still put food on the table and support my family and my kids? Will I still have a place to live?” And in this particular case, the answer is pretty much “Yes” for every one of these investment amounts that I put at the top row.
The second thing is that I always ask myself, the second question is “If I’m right on this investment, will it be a life-changing amount of money for me? That’s the thing that you always want to keep in mind is that if you have, if you invest at $100 and 2-8 years later if it grows to $213 or $525, will that be a life-changing event for you?
Will that makes a significant impact to better your life and your family. That’s what I always consider when I jump into any type of investment is one “Will the losses hurt me financially?” and number two “Will the gains benefit me significantly?”
And I’m not talking about just a small amount of gain, I want the gains to always be over 100% gain. For these long-term investments, I see no point in tying up my investment capital and my money for such a long period of time just to gain 5% or 10%.
If it’s over a year investment, I am looking for a 100% gain or more. And in this particular case, if you look at even the smallest amount it’s a 213% gain all the way up from here, all the way up to a 525% gain of potential profit if you are willing to put up this initial investment, over here, regardless of which one it is whether you choose the $100, $500, $1,000.
And then you’re willing to put that money aside and not touch it for 2-8 years. That 2-8 years come from this purple dotted trend line and this long one over here, and keep in mind that in a good case scenario the price of silver will bounce back up and skyrocket all the way up to previous all-time highs and only take 2 years to do that. In the worst case scenario, it climbs, as it normally does, before the silver manipulation, and it takes 8 years to get up to around $60.
Regardless of the time frame, you have to choose and ask yourself if it’s worth it or not and let me just pull this over here a little bit. Are you willing to invest these amounts that can potentially make a significant impact in your lifestyle?
Now if I put in $5,000 and 2-8 years later I make $12,000 that is enough for me to buy a used car in America. That $12,000 or $25,000, either one of those, any one of these price ranges here within this area, in that box that I highlighted, the profit potential is $10,000 all the way to $52,000 and any of those amounts can be a significant impact in my current lifestyle.
It can mean anywhere from getting a fairly new used automobile for my family or it can go as far as paying off a significant chunk of my house that I still owe money to the bank on. Either one of those is worth it for me to invest the initial $5,000 to $10,000 into silver at this moment.
I consider this one of those rare opportunities in life where you risk very little but there’s a huge potential gain. If you look back at this column, on the risk-reward column in the spreadsheet, you will see that the minimum is your risking $1 to make $15 and it goes all the way up to as high as you’re risking $1 to make $168.
Now if you want to take away those high numbers you can even take a look around the 28-33 range where you risk $1 and potentially make anywhere between $28 to $33 off of that dollar that you risked.
For me, this investment in silver is an ideal time and an ideal place and I hope that the information and the analysis that I’ve shared with you will help you make a better and more informed decision of whether or not you should invest into silver or buy into silver.
If you have any questions or comments, please leave it in the comment section. I will accept all coffee and beer donations because they are always awesome. Sharing is caring if you know someone that is looking to invest in silver or they are not sure when is the ideal entry point to buy silver, please share this video with them. Send me the screenshots of your successes, like always.
If you buy into silver and it goes up in your favour, make sure that you send me some screenshots of that. I’m always happy to hear when people benefit from my analysis. Likewise, if you get into the positions and it goes against you and you get out at the right time and place, they also send me the screenshots and let me know also that you are a disciplined investor and know when to cut your losses.
Like always, guys, become a real freedom fighter… There are people who talk about freedom and there are people who go out there and make it happen, that’s a choice that you are free to make and no one can hold you back. Thanks for watching this video.
I’m really looking forward to us meeting again in the future episode of Currency Analysis.