Friday, March 23rd 04:58 PM IST

A gold trading strategy

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Trading gold can be dangerously exciting. Exciting because you can make money beyond your wildest imagination if you know what you are doing, and dangerous because this instrument has no qualms decimating the accounts of a trader who tries to trade it without the relevant knowledge and experience.

Trading gold can be dangerously exciting. Exciting because you can make money beyond your wildest imagination if you know what you are doing, and dangerous because this instrument has no qualms decimating the accounts of a trader who tries to trade it without the relevant knowledge and experience.

The truth however is that gold can be traded by the experienced and not-too-experienced traders, and this is how to go about it.

For the Experienced Traders

If you are experienced, you can trade the XAU/USD (gold/USD) contract/mini-contract on the financial markets. In order to do this, you need to understand the peculiar behaviour of gold. Gold is a wealth asset. Unlike silver which is priced for its wide industrial and pharmaceutical usage, gold is used predominantly for the purpose of wealth accumulation and preservation. Some historical figures such as King Solomon, King Mansa Musa of Mali and others like them were reputed to be very rich because of the amount of gold at their disposal. Mansa Musa was reputed to have made his famed Mecca pilgrimage with 60,000 pounds of gold. The value of gold never really depreciates, and that is why when currencies are failing (or being sold off in the markets because of bad economic news emanating from a particular zone), we see a new kind of gold rush as traders rush into this safe haven currency. Trading gold online needs a lot of cash. You cannot trade gold effectively with a $500 account. You need at least $10,000 to trade the mini-contract as the asset is volatile and margin requirements are higher than in forex. In addition, the contract size is far higher than in forex.

Gold responds to the fundamentals we just described earlier. If you have the fundamentals at work, you can use the technicals to determine where to make your entries.

A very clear trade opportunity presented itself on June 24, 2011. At this time, Greece and Europe were making traders very uneasy with all manner of bad economic news, triggering a gold rush (fundamentals).

We then decided to go technical with the ADX + parabolic SAR strategy along with a candlestick trigger which gave us the trade.

The combination of the bullish harami and the buy triggers from the ADX and Parabolic SAR indicators, occurring together was a very strong bullish entry signal supporting the fundamentals. This is a move that would have earned the trader with a standard lot position on this trade, $42,000!

Well, such trading is for the big boys. If you have the money, you can dine at their table.

For the Inexperienced

If you are not too experienced and do not have too much money to trade with, then you can head over to the binary options market, use the same strategy to determine the expected price behaviour of the asset and play any of the following binary option trade types:

  1. Touch trade (in Touch/No Touch) with an upside price barrier.

  2. No Touch trade with a downside price barrier.

  3. Rise trade (in Rise/Fall).

  4. Out trade (in the In/Out)

In the binary options market, you can star trading with as low as $100 and even though you would not make anything close to the guys who use real money to trade, you could get at least 4 different types of payouts. Even if you got 80% profits from each trade, that would amount to a payout of 320%. This is not a bad start and is by far better than just letting the gold rush pass you by without getting anything from it.

The following article was provided to us by Adam at BuyGold.co.uk.

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