There are many gold trading strategies.
Sad thing is only a handful of them really work.
Read our guide to really learn about trading gold!
Nearly a century back, famous French writer Antoine de Saint-Exupéry said what has now developed into a fundamental adage of planning: “A goal without a plan is just a wish”.
A century later, this iconic statement is not only still valid but has actually now become applicable to all domains of life, including business.
Having a proper strategy and a backup plan in place not only allows you to deal better with the dynamic nature of the trading world, but it also allows you to deal with the unforeseen uncertainties in a better way.
Being new to any business, developing a new strategy, let alone a challenging one such as gold trading strategy, can be an intimidating affair.
By doing some early homework however, you can learn what works and avoid costly mistakes.
Is it true that you are energetic to begin yet somewhat uncertain of how to approach the challenge? Assuming this is the case, then fear not. We have a few strategies to help you get through the process.
1. Understand the Movers of the Market
As is the case with any other trading market, it is imperative that you first get a strong grip over the factors that influence the price of gold. A number of variables determine the price of gold including the usual macroeconomic variables such as the Interest Rate, Inflation, perceptions of people and of course, supply and demand.
As you’ll learn over time, all these factors, and their resultant repercussions, are not mutually-exclusive. You always run the risk of narrowly viewing one mover of the market in isolation, thereby ignoring the effects of the other.
Likewise there are multiple trading platforms such as physical trading, future contracts, ETFs and company’s stock. Needless to say, each has its advantages and disadvantages.
2. Know Your Crowd
Remember, you’re not the only trader in the market. There are millions of other players in the market, all with their vested interests, dealing in different denominations.
Broadly, there will be gold bugs (long-term hoarders) and there will be short-term players.
Gold bugs are in for the long haul and will hardly be deterred by downtrends that filter out somewhat less ideological players.
Gold also attracts massive hedging activities by financial institutions that make transactions in combination with other bonds and currencies, a process called “Trade-off”.
3. Decipher The Trends
Investment requires significant time and commitment. Putting in the early hours to understand the market obviously helps, and understanding the gold price chart goes a long way in improving your knowledge.
Study the trends, understand the troughs and crests, the reasons for sudden spikes and contractions and try to develop your own reasoning based on historical events.
Based on this reasoning and statistical tools, you can anticipate future trend movements and predict their outcome.
4. Learn Trading Techniques
There are virtually thousands of gold and Forex trading mechanisms and techniques, including statistical packages, Daily FX Technical Analysis page, RSI Indicators, online sites etc. which help you understand the trends and patterns of gold and Forex rates.
The seemingly difficult platforms are commonly used by industry specialists and gold trading companies and in actuality, are not that difficult to use.
5. Online Gold Trading
Trading gold over the Internet is a popular trading strategy and is based on somewhat similar principles as Foreign Exchange (Forex) trading. Thus, it is important to first familiarize yourself with the basic principles of online Forex trading before trying your luck in trading. Web gold trading provides you with greater flexibility and liquidity as you don’t have to physically own or trade any gold.
Obviously, there are natural advantages such as no cost of storage or risk of theft. Gold can be traded online in the form of an ETF (Exchange-traded fund) at competitive price, just like other commodities.
This video here better explains what ETFs are:
6. Avoiding a Disaster
As alluded to earlier, diving in a new business without a proper plan (and a backup) is a recipe for failure. Trying to earn money by mimicking the trading styles of others is hardly ever going to pay off. Remember, every person is in the market for his or her own personal reasons, adopting different styles and tactics to succeed in the market.
Since it’s your investment, it’s also your obligation to study the trends yourself and set benchmarks for sale and purchase prices.
Also taking care of minor details before the trading day, such as power supply, clean RAM and alerts for entry and exit signals, can go a long way in ensuring that a distractions-free and effective gold trading period. Lastly, only trade a portion of your position; never take a risk with more than a percentage of your portfolio.
7. Setting Benchmarks
A number of traders make the costly mistake of devoting most of their time and concentration towards buy signals, but allocate very little effort towards exit. Before you enter a trade, it is imperative that you set your exit points.
A golden rule for all traders is to set two pre-determined benchmark values i.e. setting a profit margin and knowing when to take the punch in case of a loss. Very often, gold traders try to hold on to their gold, hoping for an increase in price, only to see the value of their commodity plummet even further. Similarly, once you touch your sell benchmark value, sell a portion of your stake.
The Bottom line
In summary, it’s important to have a few standard foundations in place before investing in gold.
You should get a grip over market dynamics, develop a plan, set realistic benchmarks, abide by these pre-determined benchmarks, and be prepared to take a loss and move on.
Remember, luck plays a crucial role in trading, but many unsystematic risks can be negated by your research and understanding.
Editor's Note: If you are considering investing in gold, you can get more advice from the Gold IRA Guide. This helpful investor kit is packed with information to help you decide on whether gold investing is right for you.