While there isn’t a single formula to constantly win in online gold trading markets, there are some time-honored, tried-and-true pieces of sage advice you can take to tilt the odds in your favor.
Good Trading Habits Work on Any Commodity
Gold trading online doesn’t have a unique place in the market. This means that general good trading habits and best practices will pay off just as well with gold trading as any other commodity.
Here are a couple to start you off:
Know how to control risk and control yourself. Risk control and self-control are the two key skills that can put you ahead of the crowd. Consider this: An average beginner wouldn’t be spending a lot of time calculating and looking into risk management. Usually beginners work off of instinct — they may decide to double down on the usual size of the trade they place because the previous trade went well, or maybe skip the trade altogether if the previous one went south.
Now, notice that both of those decisions are equally wrong. If your only basis of current trade was your last trade, you’re doing trade management wrong.
What would a professional, seasoned trader do in the beginner’s stead? The pro would spend easily a third of his research time buried in computing momeny management angles. The pro would be comparing risks and rewards on different stock trades, readily discarding stocks that might initially look attractive but come with risk parameters that don’t suit his portfolio.
That’s how you manage risk in online trade, and that works just as well for gold trading.
Self-control is a lot less formulaic. There are no mathematical computations quantifying your control over your urges. There is, however, a way to track how well you manage yourself: keeping efficient trading records.
Excellent traders, regardless of their markets or their origin or their commodity of choice, all keep excellent records. Average traders either don’t keep records or keep poor records, and these are the traders that lose money. Worse, because they don’t keep quality records, they can never fully understand why they lose money and effectively avoid repeating the same pattern of loss in the future.
Diversify your portfolio. Never put your eggs in one basket. Negate the underperformance of one commodity with the good performance of another. Gold is considered a safe haven commodity, so in terms of portfolio diversity, always keep a certain percentage of gold investments as a safety net. Conservative, seasoned traders have gold at 3% to 5% of their investment portfolio.
Your percentage will differ based on your needs when you first begin, but aim for those numbers as you go along.
Understand What Makes Gold Work
This is rather self-explanatory, but it bears repeating. You need to always keep abreast of gold market research and gold trading news to get a comprehensive grasp of what makes the tides of gold ebb and flow.
Gold is one of the oldest currencies in history, and as such has intertwined itself deeply within the financial world. But gold reacts only to a small subset of the many factors that make up the market. Only a small number of price catalysts are worth watching if you’re watching for gold:
Supply and demand
Human emotion (specifically fear and greed)
Inflation and deflation
Each of these price catalysts have polarities that impact gold sentiment, trend intensity, and volume. If you keep an eye on these factors and trade gold in response to one polarity when in fact another one is controlling price action, you face higher risk.
For instance, a selloff hits the financial markets of the world, and gold skyrockets in a strong rally. A lot of traders would pinpoint fear as the factor that is moving the price of gold, and thus jump into the trend believing the emotion of the crowd will keep on pushing prices higher. On the other hand, inflation fears can trigger a decline, and a more technical slew of traders will see that as a strong hint to aggressively sell the rally.
So watch the charts and play for the long run, keeping in mind that these price catalysts and their polarities work in unison and not individually.
Get Physical
Invest in physical gold as soon as you can safely do so.
Gold coins and bars are less risky to trade than gold stocks. In the long run, you can also earn significant returns on physical gold compared to stocks. That said, initially they might not turn over any meaningful profits and you won’t be able to easily invest in physical gold when you first start off for a number of reasons. But once you can, it’s solid advice to invest part of your efforts in physical gold.
You can expand your gold-related portfolio by also investing in gold mining. This is an indirect approach to gold trading, but investing in gold mining company stock also factors in the growth of the companies, not just the fluctuations of gold itself.
Remember trading best practices, understand what moves gold, and don’t limit yourself to gold stocks. These are simple, straightforward, and best of all, successful strategies for moving up in the world of online gold trading.
