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Trading Gold

Trading gold is popular these days as both the Euro and US dollar are in jeopardy. Gold has passed $1,700 an ounce and Bank of America Merrill Lynch has raised its twelve month target price to $2,000. Remember that gold ended the 1990 at a little over $200 an ounce! Also remember that gold peaked in 1980 at over $600 an ounce in 1980, fell precipitously, and then went into hibernation for two decades. Trading gold, like trading other commodities, trading stocks, or trading derivatives such as futures and options contracts requires both fundamental and technical analysis to succeed. Although true gold bugs will say that gold is the best and only investment a look at gold prices tables over the years, shows us that gold advances and gold declines. It is with fundamental analysis of the factors that drive gold prices that traders can anticipate long term gold price movement. It with technical analysis tools such as Candlestick analysis that trading gold in the short term can become profitable.

Although buying gold bullion in 2000 and holding it until would have been profitable there is more to investing in and trading gold. Gold investing and gold trading can take a number of forms. Gold futures are traded on the COMEX, the commodity division of the New York Mercantile Exchange, NYMEX. Traders can profit from buying or selling futures directly and they can profit from buying or selling options on gold futures contracts. With gold having passed $1,700 an ounce and closing in on $1,800 an ounce COMEX gold futures trading is active. In trading futures on gold bullion it is rare for traders to hold their contract until expiration. Traders rarely if ever deliver or take delivery of physical gold. Rather they exit their futures contract on or before the end of the contract period by executing the opposite trade, hopefully with a profit.

Gold exchange traded funds, ETF, are another possibilities for trading gold. The value of the ETF tracks the value of gold bullion. Gold ETF shares trade like stocks. Traders can use Candlestick patterns to follow ETF prices as they would use Candlestick stock charts to follow ordinary stocks. As with ordinary stocks traders can profit by buying options or selling options on Gold ETF.

A means of leveraging capital in trading gold is buying stocks and selling stocks of gold mining companies. Gold stocks commonly rise faster than the price of gold in a rising market. They also fall faster in a falling market.

Options trading provides both leverage and management of investment risk in trading gold. Buying puts or buying calls on gold futures, ETF, or mining stocks limits investment risk to the price of the options contract. Of course options writers, commonly limited to large investment houses, can sustain substantial losses, which is why the business of writing options is often limited to large institutional traders with very deep pockets.

With US interest rates near zero and a solution to dealing with the monumental US debt still not in sight trading gold is attractive. Smart traders will watch the fundamentals and can use Candlestick chart formations in profitably trading gold as gold bullion, ETF, mining stocks, options, or futures.

Market Direction: Japanese Rice traders have provided hundreds of years of results based upon candlestick signals and patterns. The benefit of candlestick analysis is being able to analyze what should occur with a high degree of probability at specific technical levels. When the Dow and the NASDAQ got back up to the tee line, the candlestick signals forming at those levels revealed the possibility of a failure at the tee line. This forewarning allows an investor to be very quick at reversing the nature of their portfolio. Today's lower open, whether a big magnitude or not, after the signals that formed on the tee line, made for good probability to be out of long positions showing weakness and adding short positions the portfolio. This is not rocket science! This is merely following what the signals were telling.

When you can witness a price move and then anticipate what should occur after a specific signal, you gain a huge advantage for moving positions in the proper direction immediately. This analytical ability can be applied to stock trading, option trading, bond trading, currencies and futures. Candlestick analysis merely analyzes what investor sentiment is going to do after a specific set of signals. This is not due to fundamental elements reoccurring, it is due to investor sentiment that occurs exactly the same time after time in specific situations. Once you have learned the signals on the patterns, you gain a professionals insight into what the next price move will be with a high degree of probability.

Chat session tonight at 8 PM ET, Everyone is welcome!

Good Investing,


The Candlestick Forum Team

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