Gold has always managed to lead the way as a commodity where the price responds to certain events and the economic outlook in general, so if you want to try and find a way to greater profits when trading this precious metal, you might be rewarded for paying attention.
In terms of tracking the progress of your investments, you can watch over the price and where is it heading, via a resource like MoneyMorning.com/tag/gold-prices/. If you are trying to find a potential edge and get your timing right, here is a look at some of the things you need to be looking out for as potential signals to buy or sell gold.
The Basics of Rules and Patterns
Some investors tend to take the view that gold is one of the most challenging markets to trade, and there is some merit to that argument if you simply view how gold doesn’t seem to respond and move like other markets.
The counterargument is very simply, that if you learn how the gold market often works and pick up on some basic rules and patterns that seem to repeat themselves more often than not, there is no reason why you should be perplexed by price movements and why they are happening.
If you are disciplined enough to learn some rules and patterns that can deliver sustained profits if applied diligently, there is no real reason why you should find gold trading as challenging as some investors who try to second-guess what the precious metal will do next, without having the insight often needed.
Volume Can be Highly Significant
One of the trickiest aspects of trading, not just gold and other metals, but stocks too, is trying to determine whether a price rise is the start of a sustained rally where you can join in and profit from further upward movements, or whether the price is about to level out or even fall.
When it comes to trading gold, some regular investors take the view that volume is an important detail, that can provide the clues you are looking for. If you notice that a price rally is being supported by rising volume at the same time, that can often be an indication that a bigger rally is coming, meaning there is more room for the price to rise further than its current level.
If however, you notice that a rally is being accompanied by a noticeably low or obviously declining volume, this is often considered to be a good indicator that the rally may be running out of steam.
It may be a basic way of interpreting potential price movements, but it often helps to pay attention to trading volumes for some clues as to where the gold price is heading.
Finding the level
A tactic that is used successfully by a number of regular gold traders is to try and find where the respective support and resistance levels are. This is referred to as support and resistance trading. It involves you setting an upper and lower level for the gold price, which is based on how it has performed over the last few months.
In general terms, gold is not the most volatile commodity to trade as price movements are not always that pronounced in the short term. Therefore, if you begin trading gold based on the premise that you have identified the support and resistance levels, you may well find that you can operate within these parameters, in the knowledge that these levels are unlikely to be breached.
Support and resistance trading is considered a viable strategy when markets are not displaying volatility or high levels of activity. If there is some turmoil in stock markets, you might find that this tests the theory of support and resistance trading.
Using technical indicators
Gold is a popular market to trade and this means that you have a lot of data at your disposal, which should in theory make it easier to make a trade based on solid information.
Many investors trading in gold will look to use technical indicators as a way of establishing whether the commodity is currently being oversold or overbought. There is always enough historical data available to provide a reliable indicator of which way things are heading.
If you discover that there is evidence that gold is currently being overbought, there is a fair chance that a price drop is just around the corner, but if you believe that there are clear signs of overselling in the market, that could be considered a prime time to step in and buy.
There are numerous tactics and tips that you can follow when trying to trade gold successfully. Probably the best tip of all is to start trading in a low-risk way and then build up your stakes and holdings, once you feel comfortable and have learned some strategies that work for you.
Sophie Simmons shares her knowledge about investments and trading in her articles which appear around the web on finance and other blogs.