What are the top gold trading strategies for beginners and advanced gold traders?

in #trade8 months ago (edited)

Once upon a time, trading gold was pretty much difficult and risky as you had to buy and sell the physical metal itself. But nowadays, trading gold has probably become the easiest way of earning profits and that too without having the physical possession of the metal. Moreover, gold trading attracts more investors towards it due to the metal's reputation for being highly desired from ancient times.

Why Is Trading Gold so Popular Among the Traders?

While having both cultural and financial value, gold is considered to be the 'safe haven' investment in times of financial turbulence. Some reasons why the trading of gold is popular among the traders are listed below.

• The metal has a wide variety of industrial applications such as computing and electronics industry. Besides, it is also used for the manufacturing of jewellery.
• Gold is more likely to perform strongly in the case of high inflation scenarios. And this is why it can be used as a hedging tool.
• Last but not least, it is considered as a 'save haven' investment in times of turbulence in the financial market.
Main Difference between Trading Gold and Trading Forex
• From ancient times, gold has been considered to be a store of value because, unlike currencies, gold is not subject to the whims of government or central banks. Any fiscal policy or monetary policy cannot directly influence gold prices; therefore, it will always be worth something. On the other hand, any major reason like rampant inflation tends to end up the currency's value in no time.
• Forex traders tend to buy haven assets like gold when they are worried about risk trends. On the contrary, traders often sell haven assets when risk appetite grows. Thus, gold works as a perfect hedging tool against inflation and is also considered a valuable asset.
• Lastly, forex trading is open for 24 hours a day and five and a half days a week. On the flip side, gold trading hours are almost 24 hours per day. As the gold exchanges are open almost all the time, it offers a great liquid market to the trader. Although the forex market is considered to be the most liquid market in terms of daily market volume, the gold market is not far behind. Average daily trading volumes of gold are higher than any currency pairs except USDJPY, EURUSD, and GBPUSD.

Pro Strategies to Trade Gold

There are numerous ways to trade gold and make a significant amount of profit out of it. You should always blend technical, fundamental, and sentimental analysis to make the best possible strategies. The main seven tips you should keep in mind while forming your own trading strategies are as follows:

  1. Understand the relationship between foreign exchange and gold- The best part of trading gold is that it will always have some value even in a financial inflation scenario because the metal is not subjected to the fiscal and monetary policies of the government. On the other part, any currency can be totally worthless in case of the implementation of any serious government policies. Moreover, to standardise the market around the globe, gold is almost always traded in US dollars. So as a gold trader, you need to keep an eye on the performance of the USD to make your strategy.

  2. Understand the relation between inflation and gold- Gold is used as a hedging tool against inflation. Therefore, any announcement regarding quantitative easing (QE) can often influence the gold price. Apart from these, to standardise the gold price across the globe, the gold price is almost always decided based on USD. So there is a direct correlation between gold and currency.

  3. Conduct Technical Analysis to Make Your Trading Strategy- Like every other financial market, you need to conduct a technical analysis to finalise your trading strategy. Usage of historic price graphs to analyse the past price trends of gold is crucial for the traders to understand the market. Just like the forex traders, gold traders also need to identify the highs and lows of gold prices along with any significant trend lines or chart patterns.

  4. Keep an eye on the Technical Indicators- To predict where the future gold prices are heading, gold investors need to consider some other technical indicators like relative strength index (RSI), stochastics, 'average true range (ATR), Bollinger bands, etc. However, these indicators are also being used in other financial markets like forex.

  5. Consider the market sentiment- For beginner gold traders, it is important to consider the market sentiment to be on the profitable side. If the market sentiment is positive, the gold price is likely to fall. And if the case is the opposite, it is likely to rise. This is considered to be the simplest strategy while trading gold.

  6. Make your strategy using fundamental analysis- If you are already trading for a sufficient time, you are probably familiar with the market terminologies. Generally, the bull market is referred to if the market feels optimistic about the outlook. On the other hand, a pessimistic market where prices are likely to decrease is referred to as a bear market. As gold is being used to store its value, the price performs better during the 'bear market.'

  7. Moving averages and crossover strategy- For those who intend to trade with a short-term perspective, moving averages and crossbow strategy are the most used methods to examine the gold price. The process includes identifying the average movements of gold prices for a long and short time period. And thus, one can analyse when to sell or buy the gold.

Whether you are an expert or beginner in the trading market, you should always analyse the market trends and develop your strategies regularly to be on the profitable side. At first, decide whether you are aiming for a short-term goal or want to invest for a long-term and then fuse the technical and fundamental analysis parameters into your strategy. However, you can always go for an online course about the trading of gold to have deep knowledge about the gold market.