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Gold Trading: Top Three Gold Trading Tips

by Elena Martin   ·  October 13, 2022   ·  

Gold Trading: Top Three Gold Trading Tips

by Elena Martin   ·  October 13, 2022   ·  


There aren’t many markets on Earth with Gold’s historical allure and magnetism. While there are many trading choices available to traders today in various currencies, asset classes, and geographical locations, Gold has been a long-standing store of value that has drawn attention from speculators for about as long as people have traded with one another.

Tips for Trading Gold

The cycle sensitivity that will often appear around the metal is perhaps one of the most evident qualities of Gold, especially over a more extended period. This isn’t a brand-new occurrence, though. Since markets are cyclical creatures, Gold often moves in lockstep with other markets, despite timing variations from time to time. This gets a little clearer when considering Gold prices over the previous 45 years. The blue or grey bars on the following figure indicate trends and ranges, which brings us to tip number one:


The lesson to be learned here is how important adaptability is: There is a good chance that a trend trader would have poor outcomes if they apply their usual strategy when Gold prices are in a range. The trader should probably use a range-based strategy if gold markets are mean-reverting and range-bound. However, when gold markets are trending, as they were between 2001 and 2011 or 1976 and 1980, traders may wish to use trend techniques to adjust to the current situation.

Monthly Gold Futures Chart

gold trading


There are several places where the US Dollar is exchanged, but the most significant exchanges are where Gold is traded. In reality, a typical CFD platform equation gives a quotation for gold prices as “XAU/USD.” The denominator in the sentence is the US Dollar, emphasizing how Gold is valued in terms of US Dollars. At the same time, the periodic table of elements chemical symbol for Gold is “AU.”

This also implies that, with all other things being constant, if Gold did not change, but the value of the US Dollar rose, the price of Gold might decrease. Because under the function above, the value of the denominator, or USD, would rise, the value of the function as a whole would decrease.

Therefore, Gold may have a propensity to show an inverse connection with the US Dollar. This isn’t always the case; there are instances in which the value of both the Dollar and Gold may rise, albeit historically speaking, they are pretty uncommon.

That association is noted in the lower half of the graphic below. A positive correlation is indicated by reads or values above the zero line, which is again a little unusual but not unheard of. Inverse correlation is highlighted by readings below zero, with a value of -1 indicating a complete inverse connection.

Monthly Gold Price Chart: An Inverse Relationship with the US Dollar

gold trading


We are utilizing the Monthly variant of the charts above to examine the larger picture underlying Gold prices. However, similar circumstances and market shifts may also occur within shorter time frames. Therefore traders need to maintain a consistent framework for research to execute their plans effectively.

The above monthly variant might help get a sense of the overall picture, but traders will probably want to turn to shorter time frames for trading and carrying out plans.

A trend that has been present for over two years is shown in the blue box on the right side of the chart in the above figure. However, a closer examination of those two years using the shorter-term daily chart below reveals that gold prices were not moving the whole time. In reality, inside this longer-term trend, the same kind of trend-range-trend-range link manifested itself.

Traders should keep this in mind while establishing their trading strategies since, if they attempt to trading a trend, waiting for the potential to be shown on the monthly chart may be too late. This time, I’ve put green boxes around the shorter-term trends and grey boxes around the mean-reverting or range-bound periods. The chart below has widened the blue box to examine the trend more precisely.

Daily Gold Price Chart

gold trading


The ‘fit’ to that particular market circumstance may be more significant than the precise approach one applies to evaluate or set up transactions in Gold. For instance, if we concentrate on the green boxes in the figure above, we can see that traders will want to adhere to the proverbial maxim of “buying cheap and selling high” when the short-term trend is moving in the direction of the longer-term trend. When prices range in the grey areas, traders still want to buy cheap and sell high, but they’ll want to do it differently. They’ll want to close out their long position while the price is still “high” and then consider going short to play the opposite side of the range.

Simply put, this implies that no trader will ever be consistently “correct” since circumstances, like trends, will change, and it is impossible to foresee these changes before they occur. When anything changes or deviates from their expectations, factors like trading and risk management may be able to assist offset the adverse effects.

Simplifying Market Behavior by Assigning ‘Conditions’

If you think about it, pricing can only affect a market in one of the following two ways: Whether or not. Prices are either not moving at all or are trending in a specific way for whatever reason: Breakouts, which theoretically qualify as a market condition in and of themselves, serve as the intermediate stage between mean-reversion and trends. In an attempt to simplify, researchers may categorize market situations into three groups:

  • Trend: As traders bid higher highs and higher lows, a directional move is evident and often has a fundamental cause (or selling lower lows and lower highs).
  • Range/Mean-Reversion: In the absence of a driver, prices often show no trend, which might open the door to range-bound or mean-reversion tactics.
  • Breakouts: Breakouts occur when new information is priced in, resulting in a breakout moving from a range into a new trend. The price action may move into a new range, or that trend may continue.

Customized Approach for the Correct Situation

Knowing the situation of a market isn’t sufficient since traders will often want to tailor their strategy to that particular circumstance. For example, a trader who concentrates on breakouts probably won’t be able to endure as much excursion as a trader who prefers range/mean reversion setups.

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