Successful Gold Forex Trading Strategies
The Forex market is the largest financial market with trillions of dollars worth of transactions occurring every day. Just like trading in stocks and bonds, trading of gold in the spot gold forex market is a high risk & return form of investment. Trading successfully in Forex requires understanding of the market dynamics that affects change in the price of currencies.
Since gold is a currency in Forex trading, successful Forex trading strategies that applies to trading in other currencies also applies to trading in gold spot Forex market. Some of the successful strategies for trading successfully in gold spot Forex market are described in the following paragraphs.
Before embarking in the journey of Forex trading, you should first understand the inner mechanism in trading of Gold Forex. Trading successfully in Forex requires deep understanding about past trends and extrapolating future prices based on these trends. It requires that you understand the factors that influence values of currency pairs.
You should know about why gold prices fluctuates in the international arena and the correlation of changing prices to various currency pair. Moreover, successful Forex trading requires understanding of fundamental and technical analysis to develop successful trading strategies. You should know how to correctly read gold price charts, Forex graphs and other indicators to analyze past historical performance.
The success rate of trading in Forex ranges from 27% to 43%. Only those investors who know the tricks of the trade are successful in Forex trading.
Do Proper Research:
After familiarizing with the inner workings of Forex trading, your next task to trade successfully in Gold Forex trading is to do proper research in selecting a trading platform.
There are a number of online Forex platforms that allow you to trade in Forex. These Forex platforms offer the same basic purpose with slight difference in offerings. The online brokers can be categorized into two types based on the level of support available to the investors.
Discount brokerage firms offer just the bare basics of online trading without expert advice on Forex trading. They are suitable if you want to make your own decision regarding buy and sell options. However, if you are new to the Forex trading or want expert advice on trading in Forex, then a Full Service Forex brokerage firm is right for you.
Apart from this you should also research about reputation and reliability of the online firm before selecting one to trade in Forex. Reading online testimonials from reliable sites like Yelp and Angie’s list, is a good start to know about the reputation of the online trading platform.
In order to gauge the reliability of online trading platform, you should create a practice account and visit the site various time of the day to know whether it is up to speed and will allow trading in Forex without any delay. Trading in Forex involve split second decision that is why the online trading platform should be fast enough to allow nonstop trading especially during peak hours.
Retail brokerages often provide vast amounts of data and historical trading information that can help inform trades and be used to spot trends. Some platforms, like Forex.com, also provide news feeds that give customers information that could be affecting the foreign-exchange market.
Nearly any major economic report or major news event can affect a currency, so news websites also can be tapped as resources for determining which way currencies might move.
Diversify your Investment in Forex:
Trading in Forex is similar to trading in stocks and bonds. You should diversify your investment in Forex across various currency pairs. This ensures that if you are incurring loss in one currency pair, the loss is made up by gain from another currency pair.
To successfully diversify your investment, you should know about correlation between various currency pairs. Some currency pairs are negatively correlated with each other while others are positively correlated. Negative correlation means that the currency pair rise and fall in opposite direction, while positive correlation means that currency pair rise and fall in the same direction.
You should use currency correlation to your advantage and device a trading strategy to invest a certain portion of your investment in each group. If you hold long or short position in negatively correlated currency pairs, you will ensure that you obtain positive returns from one of those pairs thus minimizing risk of investing of Forex. According to Brian Dolan of “Currency Trading for Dummies” you should never put more than 5% to 10% of your account in any one currency pair and diversify the portfolio.
Have a Proper Entry and Exit Strategy:
Apart from diversifying your portfolio, you should also have proper entry and exit strategy while trading in Forex. Trading in gold spot Forex market requires that you are expert in analyzing gold price and currency pair charts and graphs.
In Forex trade timing is everything. Expertise in reading Forex charts and graphs allow you to know technical indicators that determine optimum time to enter and exit the Forex market. Proper timing ensures that you obtain positive returns from investment and minimize the losses from Forex trade.
How do you know the optimum time to buy the currency pair? You should simply determine whether the currency pair is “over-trading” or “under-trading”. Over-trading means the currency pair is in overbought position and the price is expected to decline. Contrarily, currency pair is in oversold position and the price is expected to rise.
You should enter the market when the currency pair is under-trading and exit the market when the currency pair is overtrading in the Forex market.
Set Proper Stop Loss And Cash Out Limit:
In order to limit the loss of trading in Forex, you set up a “stop-loss” order. A stop loss order limits the loss by automatically closing a trade when a certain price limit is reached. In addition, you should also set a “take-profit” limit that cashes out after reaching a specified price.
For example, suppose the XAU/USD is trading at $1200.4500. You can set a stop-loss limit at $1200.4460 pips and a take-profit limit at $1200.4600. So, if the order is of standard size i.e. 100,000 units, you would not lose more than $400 and gain to the extent of $1,000 from the trade.