XAUUSD Chart by TradingView


Gold Trading Tips

Some say that gold is one of the most difficult markets to trade and there is some truth to that – gold doesn’t move like other markets and if investors want to be successful trading it (and it can be very rewarding), they have to keep several things in mind. Over the years of monitoring and analyzing the gold market we noticed many profitable rules and patterns. We successfully applied them and are still applying them for our precious metals trades and we will share our knowledge on this page. It took years of analyzing, testing and using our own capital to make sure that these points are really useful. The tips that you find below should make trading gold easier and much more profitable.

  • Keep carefully the sizes of your gold, silver and mining trading positions small. The bigger the chance to be correct.
  • Check the efficiency of each indicator that you want to use on the gold marketplace (or other marketplaces) before applying it and trading real capital based on it.
  • Consider using RSI and Stochastic indicators for gold, silver and mining stocks as they have proven to be useful over many years. Other indicators can be useful as well, but be sure that you examine them before you decide to make trading decisions predicated on them.
  • If a given indicator works “almost as well” as you’d like it, but you see that it has potential, don’t be afraid to modify it. For example in case of RSI, you see good selling opportunities when this indicator moves to 65 or so instead of the classic 70 level) then it could be useful and lucrative to either add additional overbought / oversold level, breaking which would generate a signal (in this case a sell signal) or to change the parameters of the indicator, deviating from the standard values.
  • Use moving averages only if they have been working for a given market in the past – if confirmed market has been ignoring a certain moving average, most likely so can you.
  • Keep track of the price seasonality – in our opinion its best to use True Seasonal as expiration of derivatives can also have an important impact on the price of gold, but if you can’t get access to them, it’s better to make use of regular seasonality than none at all.
  • Silver and mining shares. The more significant lows or highs are used for creating a given trend line or channel, the stronger the support or resistance is.
  • The previous highs and lows can and often serve as support/ resistance levels aswell – in the case of the valuable metals market, the strength of the support / resistance is strength of the support / resistance created as rising or declining trend lines. The even more significant the high or low is usually, the stronger the level of resistance or support.
  • Note that markets have not only a cyclical nature, but a fractal one, too. Which means that price patterns that we saw on a bigger scale are quite likely to be seen on a smaller scale (proportionately). Silver or mining stocks and shares will move. , make sure to be on the lookout for the self-similar patterns (if the current price move is similar to the previous ones, it’s quite likely that the final part of the pattern – that’s still ahead – will also be similar, which allows you to position yourself to take advantage of it).
  • Pay attention to volume. The volume is a very important, yet often overlooked, piece of information. If a rally is definitely accompanied by rising volume, then it’s likely a start of an even bigger rally. Then it’s likely ending. If a decline can be accompanied by high or increasing volume (unless there is a day when the purchase price visibly reverses), then the decline is likely to continue. If a decline is certainly accompanied by low volume, then there are no meaningful implications (yes, the situation is not symmetrical in this instance). The above are general guidelines, and before applying them to the current market situation, be certain to check if the above (the part of the above that currently represents the situation on the market) really worked in the way above – if it didn’t, after that it’s generally easier to expect the same type of reaction that previously accompanied a particular price/volume pattern.
  • Look for price formations (like a head and shoulders formation), but before you apply them (believe that a certain formation is “in play” and likely to cause a specific move which would cause you to enter or close confirmed trade) be sure to check on if this kind of formation worked on this market previously. For instance “breakouts” (which are not a formation by themselves, but this example illustrates what we mean) in silver have quite often resulted in price declines (breakouts were invalidated) instead of rallies, so their actual implications were the opposite of what one might have expected based on the classic definition of a breakout.
  • Wait for confirmations. It’s usually better to wait for breakouts / breakdowns confirmation before taking action. In the case of the precious metals market, predicated on our experience, it’s worth waiting for three consecutive closing prices below / above the critical price level before viewing the breakout / breakdown as “confirmed” and thus meaningful. Invalidation of a breakout is normally a bearish sign and invalidation of a breakdown is a bullish sign.
  • Analyze more than the market in which you want to trade. In today’s global economy no marketplace can move totally independently. Gold and the rest of the valuable metals sector are no exception – their price moves are often linked to the moves on the currency market, progresses the general stock market, interest rates, Fed’s comments, and performance of gold stocks and silver stocks are just the most important ones. Be sure to check what markets were moving in tune or in the contrary direction to gold before and make sure that their impact is likely to be supportive of the trading position that you are about to open. For instance, then your odds are that the USD Index will top and contribute to or even trigger gold’s decline.
  • Analyze ratios. Of course, but this has not been the case during the post-2011 decline), that are important due to fundamental factors (gold vs. bonds ratio – both can be seen as safe-haven assets and major bottoms and tops in this ratio take place along with main tops and bottoms in gold, so it can be used as a confirmation) or because they are frequently discussed (gold to oil ratio).
  • Analyze other time-frames than the one that you’re focusing on. Even if you are placing a short-term trade, make certain to check the medium- and long-term trend. Generally, the longer the time frame, the more powerful the support and resistance levels, so even if you analyzed the short-term picture, it can be the case that a given move will become stopped by a medium- or long-term level of resistance. If you’re concentrating on the moderate- or long-term trades, the short-term picture can help you fine-tune the moment of entering or exiting the marketplace.
  • Be on the constant lookout for anomalies. When you see something odd, investigate and find the reason behind it and check if anything similar happened previously – if yes, examine what happened next. If similar things were always followed by the same kind of price pattern in gold, silver and/or mining shares, it might be a good idea to trade it. If not really, then perhaps the reason behind the anomaly resulted in something else that had a more specific effect on the precious metals prices.
  • Monitor investor sentiment. If the vast majority (!) of valuable metals investors and traders are bullish, then gold is likely close to a top (in cases like this it makes sense to look for selling signals and / or confirmations that the top is in and – if they are present – exit long positions and enter short ones). Conversely, if everyone and their brother is usually bearish in the marketplace, then a bottom is very likely close to being in or already in. The ways to estimate sentiment include checking how often people look for gold-related terms (like “gold stocks”) in Google Trends, monitoring outcomes of surveys with questions like “where will gold price be in 3 months” and similar queries, on a side note when you see a certain, big gold-related website is very slow or crashes after a big move up or down, after that it likely implies that the traffic / interest in gold was enormous, which is another way of detecting that a major price extreme is well-nigh (we saw that in 2011 when gold topped).
  • Even if your primary approach is definitely to trade gold, we still encourage you to consider dedicating a part of the capital to long-term investments – it should lower the overall variability of your returns and making gains more stable. There are also other benefits that people outlined in our very first report in which we discussed whether trading gold or investing in it is more profitable. Our precious metal portfolio report includes a sample portfolio for “Trader John”, which might serve as an example (of course, it’s not investment advice) of how traders could structure their portfolios and benefit from diversified strategies.
  • Before you decide to follow a given analyst, be sure to check how long they have been in the business and if they’re known for their good performance.
  • If you do decide to follow someone, it’s usually smart to stay with them even if they happen to be incorrect about the market one or even a few times in a row as markets are sometimes moving almost randomly (they are emotional, not logical in the short term) and everyone has to be incorrect eventually (that doesn’t necessarily imply following what they do using your capital – it means monitoring their overall performance to observe for yourself if they can grow your capital over time).

 

The above is not a 100% complete list of what we discovered on the topic of gold trading, but it includes the majority of things that we found to be very useful over and over again.

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