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Five Reasons and Six Ways to Invest in Gold"Gold is money. Everything else is credit.", said John Pierpont Morgan. When borrowers default, markets collapse and banks run into crisis, gold prices skyrocket. Gold is trading at a 12-month high on March 18th. Gold has been valued for thousands of years. Gold has unique properties. It has been enchanting women and men since humans set foot on the planet. Polycrisis. That aptly describes the current times. The US regional bank crisis haunts markets. Credit Suisse - the bank to the wealthiest was so frail that Swiss National Bank had to step in to provide liquidity backstop. Regulators worked over the weekend to broker an acquisition by UBS to prevent a banking crisis from spreading. Inflation is raging hot at levels unseen in 40+ years. Compounding Chair Powell's quagmire, the US Fed has been forced to switch from QT to QE by providing support to its regional banks from collapsing under crisis of confidence. Geo-politics remains tricky. In times of crisis, investors seek flight to safety. Safest of all assets since civilisation began has been gold. This educational piece provides an overview of (a) physical gold market dynamics, (b) largest holders of gold reserves, and (c) gold price behaviour against other asset classes. It also describes five primary reasons for investing in gold, contrasts six methods of doing so, and highlights the downsides of holding gold. PHYSICAL GOLD DYNAMICS Gold performs multiple functions. It is a currency to some. Store of wealth to others. It is an industrial metal used in consumer electronics. The rich love gold in clothing and food. A bird's eye view of physical gold can be summarily described in three parts: 1. Consumers : Gold is used in consumer electronics due to its high conductivity and low corrosive properties. Gold used as industrial metal represents 6%-8% of total demand. Unsurprisingly, >50% of global gold demand is for jewellery. Jewellery is a multi-tasker. It meets aesthetic goals, serves as a status symbol while also being a form of investment. 2. Gold Reserves : Central banks hold gold as reserves. They are the most significant holders of gold. The haven nature of gold compels central banks to increase holdings during economic uncertainty, high inflation, or currency devaluation. Central Banks added >382 tonnes to their reserves in 2022. 3. Producers : Gold mining is a cyclical industry. Mining output has been in decline over the past decade as major gold producers shift to mining minerals and other metals like copper with the proliferation of lithium-ion batteries in EVs. Gold mining took a huge output hit during the pandemic and may not recover any time soon as capital expenditure into new gold mines is limited. GOLD RESERVES - THE MOVERS AND SHAKERS According to the World Gold Council, as of end 2022, central banks in Western European (11.8k tons) have the largest gold reserves followed by North Americans (8.1k tons), Central & Eastern Europeans (3.5k tons), and East Asians (3.4k tons). Last year, central banks of Turkey, China, Egypt, Qatar, and Uzbekistan were the largest buyers of gold. FIVE REASONS WHY GOLD SHOULD BE IN INVESTMENT PORTFOLIOS Gold is a resilient store of wealth, provides meaningful portfolio diversification, has limited price volatility, extends benefits of hedge against inflation & currency debasement, and is limited in supply. 1. Resilient Store of Wealth Gold outperforms equities during periods of economic instability. Due to its material properties and scarcity, it can even become more valuable during such periods as investors seek shelter in classic risk-off assets such as gold. 2. Portfolio Diversification Gold can have both positive and negative correlation with other asset classes during different periods. This makes it an attractive addition to a diversified portfolio. 3. Limited Volatility Due to its large market size and diverse supply origins, gold is less volatile than equities and other asset classes making it a safer asset class for investors. 4. Inflation Hedge Gold is often seen as an inflation hedge. Which means that it can maintain its value or appreciate during periods of high inflation due to its scarcity and safety. However, in some cases monetary policy changes like interest rate hikes may make gold a less attractive investment compared to treasury yields during inflationary periods. 5. Limited in supply Gold is a finite resource, that too, one of the rarest precious metals in the world. Moreover, more than 200,000 tonnes of gold have already been dug up. This represents more than half of the total reserves. The gold that is yet to be mined is much more difficult to extract economically. Scarcity creates rarity, which in turn drives the value of the existing gold higher. Many governments, banks, and people also use gold as a long-term investment, which means a huge portion of the gold supply is taken out of circulation, shrinking available supply even more. SIX WAYS OF INVESTING IN GOLD There are multiple ways of investing in gold. Six primary ones are: 1. Physical Gold : Gold can be bought and stored in the form of jewellery or gold bars. Costs of storage, insurance and making charges can be substantial and also inconvenient. Investing in physical gold is not optimal for reasons of poor convenience and higher transaction costs. 2. Gold ETF : Exposure to gold can also be acquired through buying exchange traded funds (ETF) backed by physical gold. There are multiple ETFs that track physical gold prices. The SPDR Gold Shares ETF (GLD) was the pioneer and began trading in 2004. It has an expense ratio of 0.4% and tracks gold bullion prices. GLD holds both physical gold bullion and cash. GLD provides a liquid lower-cost method to buy and hold gold. Gold can be bought and sold during the trading day at market price. Investors must pay heed to taxation as gains from ETFs in some jurisdictions can be treated differently compared to other forms of gold. 3. Gold Futures : CME’s COMEX Gold futures is the world’s most liquid derivatives which enables capital efficient exposure to Gold. With round the clock liquidity, tight bid-ask spread and benefits of a cleared contract, investing through COMEX Gold futures is widely popular. Each lot of COMEX Gold Futures provides exposure to 100 oz of Gold. Enabling affordable access to investors and to facilitate accurate granular hedging, CME also offers Micro Gold Futures. Each lot of Micro Gold contract provides exposure to 10 oz of Gold. 4. Gold Options : CME also offers options on Gold Futures. Gold options is a useful investing and hedging tool. Using options, investors can lock in unlimited upside potential of price moves while limiting the adverse impact of downside price moves. 5. Shares of Gold Producers : Gold mining is an international business. Gold is mined on every continent except Antarctica. Top gold miners include Newmont (USA), Barrick (Canada), Anglogold Ashanti (South Africa), Kinross (Canada), Gold Fields (South Africa), Newcrest (Australia), Agnica Eagle (Canada), Polyus (Russia), Polymetal (Russia), and Harmony (South Africa). As is evident from the chart above, investing in gold miners for exposure to gold is a poor proxy as most of them have underperformed relative to gold prices. Furthermore, FX exposures must be hedged separately for some stocks which trade in emerging markets. In summary, securing gold exposure through miners is not optimal relative to other alternatives. 6. Gold CFDs : CFDs also known as contract for differences allows for synthetic access to the price of spot gold. These CFDs are OTC derivatives contracts which carry non-trivial counterparty risk with investors being exposed to the credit risk of the CFD provider. The table below summarises the merits of various gold investment instruments across key investment attributes. GOLD TOO HAS ITS DOWNSIDES Gold is a non-yielding asset. Shares of profitable companies pay dividends. Holding debt earns interest. Real estate delivers rents. But gold provides zero yield. For every problem, innovation in markets provides a solution. In a future paper, Mint Finance will demonstrate how gold can be transformed into a yield generating asset. Rising interest rates are headwinds to gold. As rates on treasury, bonds and deposits rise, investors rotate their money out of gold and into yield generating assets. Not only is gold non-yielding, but the returns also fade into insignificance relative to gains from innovation. In times of crisis, gold is a great hedge. However, while positioning portfolios for the long term, investors must astutely balance between safety versus growth. GOLD RETURNS IN RELATION TO OTHER ASSET CLASSES 1. US Equities and Emerging Markets Gold outperforms equities during periods of crisis. During equity bull runs, gold underperforms equities. Cumulatively, over the last 20 years, Gold has outperformed Dow Jones, S&P 500, and MSCI Emerging Markets. Only Nasdaq, which represents tech, innovation and growth has surpassed gold returns. 2. Treasuries with 2-Year and 10-Year Maturities Unsurprisingly, when sovereign risks rise and treasury yields fall to zero, gold shines. Between two non-yielding assets, investors prefer to take shelter in gold as a preferred haven. However, when rates rise, investors rotate out of gold and into treasuries. 3. Crude Oil, Copper, and Silver Over the last two decades, Gold has outperformed crude oil, copper, and silver. 4. Dollar Index, Bitcoin and Ethereum While US Dollar and gold are both global reserves, gold has outperformed the Dollar Index which is the value of the USD against a basket of six international currencies. However, relative to bitcoin and ethereum, gold pales into insignificance. Bitcoin is perceived as millennial gold and ethereum is the millennial oil. Both assets have obliterated gold in terms of price returns. 5. Major Currencies Over the last 3 years, as markets emerged out of the pandemic, gold has outperformed all the major currencies. Yen, under the influence of Governor Kuroda’s liberal QE program, has depreciated 63% against gold. Indian Rupee has deflated 47% while Euro and Sterling have shed 38% and 32% against gold. The US Dollar, Chinese Renminbi, and Aussie Dollar have depreciated 31%, 29% and 20% against gold, respectively. Key Takeaways Gold is money. Everything else is credit. Gold glows in crisis. It is a knight in shining armour for investors. Gold is the only asset which exhibits negative correlation. These are times of polycrisis. As investors seek flight to safety from banks even, gold is the safest among the few remaining alternatives. Gold is a resilient store of wealth, offers durable diversification within a portfolio, exhibits much lower volatility relative to equities, and serves as an inflation hedge albeit with less than a perfect record. Clients can invest in gold in multiple ways. Gold futures is the most convenient and optimal among the six alternatives. Gold has its downsides. It is a non-yielding asset and performs dismally against innovation and growth. Except for Nasdaq, bitcoin and ethereum, gold has outperformed currency majors, equity indices, US treasury, and commodities. In a future paper, Mint Finance will explore ways in which gold can be transformed into a yield generating asset. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. This material has been published for general education and circulation only. It does not offer or solicit to buy or sell and does not address specific investment or risk management objectives, financial situation, or needs of any person. Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies. Past performance is not indicative of future performance. All examples used in this workshop are hypothetical and are used for explanation purposes only. Contents in this material is not investment advice and/or may or may not be the results of actual market experience. Mint Finance does not endorse or shall not be liable for the content of information provided by third parties. Use of and/or reliance on such information is entirely at the reader’s own risk. These materials are not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Mint Finance to any registration or licensing requirement.
COMEX:GC1!Education
by mintdotfinance
33
XAUUSD How to deal with fake outs (tutorial) Good morning gold gang! Im back with another educational piece this weekend getting ready for market open. In this weeks i want to look at the fakeout. The fakeout is a false breakout of the key level. When price moves and closes outside of the level, the next step is to enter the trade. Sometimes what happens is price will close then shoot back up into the range. This is a fakeout. The way i deal with them is i always make sure my entry is a pip or 2 after the wick of the previous candle .. normally what happens is the next candle will open before the wick and saving you from the entry. If this doesnt happen, then you take the loss like a man/woman/person and move on. What NOT to do is change bias and take buys (in this case) as you can get faked out this way too .. a change in bias would be above the next htf resistance or key level. Hope this was educational guys .. please like and follow along for more XAUUSD updates. I post daily and you dont want to miss them. tommyXAU
OANDA:XAUUSDEducation
by tommyXAU
2
Special Report: Celebrating 40 Years of Crude Oil FuturesNYMEX: WTI Crude Oil ( NYMEX:CL1! ) On March 30, 1983, New York Mercantile Exchange (NYMEX) launched futures contract on WTI crude oil. This marked the beginning of an era of energy futures. WTI is now the most liquid commodity futures contract in the world. It’s 1.7 million daily volume is equivalent to 1.7 billion barrels of crude oil and $125 billion in notional value. For comparison, global oil production was 89.9 million barrels per day in 2021. Looking back at 1983, exactly 40 years ago: • NYMEX was primarily a marketplace for agricultural commodities, with Maine Potato Futures being its biggest contract; • NYMEX was a small Exchange with 816 members, mainly local traders and brokers; • Known as Black Gold, crude oil was a strategic commodity regulated by governments and monopolized by the Big Oil, the so-called “Seven Sisters”; • Pricing of crude oil was not a function of free market but controlled by the Organization of Petroleum Export Countries (OPEC), an oil cartel. The birth of crude oil futures contract was a remarkable story of financial innovation and great vision. Facing a “Mission Impossible”, NYMEX successfully pulled it off. At the helm of the century-old Exchange was Michel Marks, its 33-year-old Chairman, and John E. Treat, the 37-year-old NYMEX President. The “Accidental Chairman” Michel Marks came from a long-time NYMEX member family. His father, Francis Q. Marks, was a trading pit icon and influential member. Since high school, the younger Marks worked as a runner on the trading pit for his family business. After receiving an Economics degree from Princeton University, Michel Marks returned to NYMEX as a full-time member, trading platinum and potatoes. In 1977, the entire NYMEX board of directors resigned, taking responsibility for the Potato Futures default from the prior year. Michel Marks was elected Vice Chairman of the new Board. He was 27 years old. One year later, the Chairman at the time suffered a stroke. Michel Marks replaced him as the new NYMEX Chairman. At 28, he’s the youngest leader of any Exchange in the 175-year history of modern futures industry. White House Energy Advisor John E. Treat served in the US Navy in the Middle East and later worked as an international affairs consultant in the region. He received an Economics degree in Princeton and a master’s degree in international relations from John Hopkins. During the Carter Administration (1977-1981), Treat worked at the US Department of Energy. He served as Deputy Assistant Secretary for International Affairs and sat on the National Security Council and the Federal Energy Administration. In his capacity, Treat was at the center of the formation of US energy policy. After President Carter lost his reelection bid, Treat left Washington in 1981. At the time, NYMEX was exploring new contracts outside of agricultural commodities. One possible direction was the energy sector, where NYMEX previously listed a Heating Oil contract with little traction in the market. With his strong background, Treat was recruited by NYMEX as a senior vice president. A year later, after then President Richard Leone resigned, Treat was nominated by Chairman Marks to become NYMEX President. He was 36 years old. The Birth of WTI Crude Oil Futures In 1979, the Islamic Revolution in Iran overthrew the Pahlavi dynasty and established the Islamic Republic of Iran, led by Shiite spiritual leader Ayatollah Khomeini. Shortly after, the Iran-Iraq War broke out. Daily production of crude oil fell sharply, and the price of crude oil rose from $14 to $35 per barrel. This event was known as the second oil crisis. It triggered a global economic recession, with U.S. GDP falling by 3 percent. After President Reagan took office in 1981, he introduced a series of new policies, known as Reaganomics, to boost the U.S. economy. The four pillars that represent Reaganomics were reducing the growth of government spending, reducing federal income taxes and capital gains taxes, reducing government regulation, and tightening the money supply to reduce inflation. In terms of energy policy, the Reagan administration relaxed government regulations on domestic oil and gas exploration and relaxed the price of natural gas. NYMEX President John Treat sensed that the time was ripe for energy futures. He formed an Advisory Committee to conduct a feasibility study on the listing of crude oil futures. His strategic initiative received the backing of Chairman Michel Marks, who in turn gathered the support of the full NYMEX membership. Arnold Safir, an economist on the advisory board, led the contract design of WTI crude oil futures. The underlying commodity is West Texas Intermediate produced in Cushing, Oklahoma. The delivery location was chosen for the convenience of domestic oil refineries. WTI oil contains fewer impurities, which results in lower processing costs. US refineries prefer to use WTI over the heavier Gulf oil. WTI trading code is CL, the abbreviation of Crude Light. Contract size is 1,000 barrels of crude oil. At $73/barrel, each contract is worth $73,000. Due to the profound impact of crude oil on world economy, NYMEX lists contracts covering a nine-year period. On March 29, 1983, the CFTC approved NYMEX's application. The next day, WTI crude oil futures traded on the NYMEX floor for the first time. Competing for the Pricing Power Now that crude oil futures were listed. Initially, only NYMEX members and speculators were trading the contracts. All the oil industry giants sat on the sidelines. John Treat knew that without their participation, the futures market could not have meaningful impact on the oil market, not to mention a pricing power over crude oil. In early 1980s, the global oil market was monopolized by seven Western oil companies, known as the "Seven Sisters". Together, they control nearly one-third of global oil and gas production and more than one-third of oil and gas reserves. 1) Standard Oil of New Jersey, later became Exxon; 2) Standard Oil of New York, later became Mobil Oil Company; It merged with Exxon in 1998 to form ExxonMobil; 3) Standard Oil of California, later became Chevron; It took over Texaco in 2001, and the combined company is still named Chevron; 4) Texaco, collapsed in 2001 and was taken over by Chevron; 5) Gulf Oil, which was acquired by Chevron in 1984; 6) British Persian Oil Company, operating in Iran, withdrew after the Iranian Revolution and then fully operated the North Sea oil fields, later British Petroleum ("BP"); 7) Shell, an Anglo-Dutch joint venture. Treat's background as President Carter's energy adviser played a key role. After nearly a year of hard work, the first Big Oil entered the NYMEX crude oil trading floor. However, it was not until five years later that all Seven Sisters became NYMEX members. OPEC producers tried to boycott the crude oil futures market. However, as trading volume grew, they eventually gave in, first by Venezuela and then the oil producers in the Middle East. Interestingly, the Middle Eastern oil producers started out by trading COMEX gold futures, probably as a hedge against oil prices. Gold has been a significant part in the Middle Eastern culture for long. As the main buyers of gold, the Arabs buy more gold when their pockets are filled with rising oil prices, and conversely, they sell gold when oil revenues fall and their ability to buy gold decreases. With the participation of Big Oil and OPEC, coupled with an active crude oil options market, crude oil pricing power has shifted from the Middle East to NYMEX's trading floor by the end of the 1980s. WTI has also become a globally recognized benchmark for crude oil prices. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
NYMEX:CL1!Education
by JimHuangChicago
33
tommyXAU simple entry model. Good morning gold gang! I thought id hop on here and post my super simple entry method for you to see. Its no SMC or ICT model that turns your brain in knots trying to figure out .. its simple, as trading should be. I look at some strategies on here and think to myself .. wow, that would turn me into an emotional wreck with my finger on the button. Ask yourself this .. do professional traders in banks use trading view and mark up charts? Its all time and price. Here i am looking for strong breaks of my banking levels in high volume times with a strong closure (30m/1h) preferably. Then an entry on the break of that candles wick. Target is always the next banking level but be very savvy with your risk management. Other areas play a factor too you cant just blindly jump in here .. but this is the exact model i use to execute. Hope this helps guys, drop a like if it did. See you tonight for market open tommyXAU
OANDA:XAUUSDEducation
by tommyXAU
4
A reasonable trading plan is the starting point of successA reasonable trading plan is the starting point of success An excellent investor never trades aimlessly. Before making a trade, they always have their own trading plan to help them identify trading opportunities and avoid chasing market trends. Developing and executing a trading plan is an important component of trading success. So, how do you develop and execute a trading plan? To answer this question, I think it is necessary to understand the following concepts: What is the meaning and characteristics of a trading plan? What elements should a qualified trading plan include? What obstacles are there to executing the plan? 1.Meaning of a trading plan A trading plan refers to the measures, methods, and steps that a trader develops to achieve trading goals within a certain period of time. As the author of "High Probability Trading" said, a trading plan is like a business plan for a merchant, and the content of the plan must be clear and concise. Although it may not necessarily be in writing, it is recommended that traders use written form to better follow the plan and facilitate regular evaluation. 1.Characteristics of a trading plan First of all, a plan must be forward-looking. We develop a trading plan based on our anticipation of the future, so before making a plan, we must have a clear understanding of the various possible scenarios and have a correct idea of the trading goals, measures, and methods. Therefore, without foresight, there is no plan, and foresight is the main characteristic of a plan. Secondly, a plan must be procedural. In developing a trading plan, there must be a meticulous time schedule and requirements for what to do first and what to do later. When executing the trading plan, there should be stages and priorities. Therefore, in developing a trading plan, there must be time requirements and corresponding arrangements for each stage to reflect the meticulousness and procedural nature of the plan. 1.Components of a Trading Plan: Which markets will you trade in? What analysis tools will you use? What is your market analysis before entering the trade? What are the entry requirements? How much risk will you take on? What is your exit strategy? What are your expected trade duration and performance? What possible market developments could occur? How will you achieve your trading goals? Choosing the markets to trade in depends on your capital and trading strategy. For example, if you are a trend trader, you cannot choose to trade in volatile markets. Of course, the prerequisite for this work is to establish your own trading strategy in advance. Which analysis tool to use When it comes to analysis tools, perhaps you're using some kind of technical or fundamental analysis, but regardless of which one you use, you need to understand the principles behind it and conduct sufficient research and testing on its feasibility and success rate before applying it. What is the market analysis for your entry into trading? Through analysis, you need to understand what the current state of the market is and whether it meets your trading conditions. What are your expectations for the future direction of the market? What do others think about the current situation? What are the entry trading conditions? The entry trading condition, also known as a trading signal, must be based on a firm, logical theoretical foundation, must be clear and unique, and cannot be ambiguous. Like the analysis method, it also needs to be thoroughly evaluated and tested. You need to understand the development of successful trading signals and the development of failed trading signals. How much risk are you willing to take? In trading, the most important thing is to learn to protect yourself. Therefore, before any trade, you must be clear about how much capital you will invest in this trade and how much risk you can bear. In other words, if you make a wrong judgment, what is the maximum loss you can tolerate? Can you bear the losses caused by a failed trade? Will it have a negative impact on you? What is your exit strategy? The exit strategy includes three aspects: a stop-loss strategy, which is the exit strategy for misjudgment; a profit-taking strategy, which is the exit strategy for successfully completing a trade; and a strategy for exiting when the price does not move as you expected over a period of time. The most difficult part is the formulation and execution of the stop-loss strategy. The premise for setting a stop-loss is to understand when your judgment is wrong, so we mentioned earlier that you must understand the principles of the judgment tool. The difficulty of executing a stop-loss is because it involves denying your previous judgment and accepting the reality of financial losses, which is obviously a huge challenge for traders. Therefore, executing a stop-loss is far more difficult than executing a profit-taking strategy. What are your expected operation time and performance? When you start a trade, you should have an expectation of the time and price movement target for its future development, which is crucial for your future monitoring. What are the possible developments in the market? We know that market development is uncertain, so we must have a foresight of how many possibilities there may be in the future. On the one hand, this involves your capital management. If you can always keep the uncertainty of market development in mind, then you will never fully invest because no one can ensure that accidents will not happen. On the other hand, multiple expectations can reduce the possibility of emotional and sudden decision-making trades. How to achieve trading goals In this trading task, do you plan to increase the trading results by adding positions? If so, under what circumstances do you plan to add positions? If adding positions fails, what kind of exit strategy will you adopt? Will you exit the trade with a partial or full position? After clarifying and completing the above work, the trading plan is basically completed. However, this is only a good start for a trade. The most important work is to resolutely and quickly execute the trading plan you have formulated. Although some traders have never formulated a trading plan...
BITSTAMP:BTCUSDEducation
by Navigation-h
The logic and laws of the marketBefore entering the market, we knew about the Pareto principle in the trading field. But after studying it for a while, you may enter the market with confidence, thinking that trading is not that difficult and that you are superior and can beat the so-called "housewives." This is the human tendency to overestimate oneself and be overconfident. After entering the market and making a few trades recklessly, you will soon find yourself with bruises and swelling. Your confidence will be shattered, and you will begin to realize that even though you are a genius, you still need to learn. So, the two major factions in the speculative field, fundamental and technical, are waiting for you. During this period, which faction you join is entirely determined by your "destiny." If everyone around you is focused on fundamentals, you will join the fundamental camp; if everyone around you is focused on short-term, technical analysis, you will join the technical camp. This is almost the inevitable path for every investor and trader. In these two factions, the vast majority of investors are eager to elevate their skills to the highest level in this field. If you choose fundamental analysis, you should become a person who has a mastery of fundamental analysis. If you study technical analysis, you should push various technical indicators, trading volume, open interest, and other factors to the extreme. We may experience losses, but the reason for our losses is that our research and development capabilities are not strong enough to prevent them. We will continue to work hard until we have the ability to grasp the overall trend at the highest level and achieve stable profits in the end. This is what most investors pursue. However, most investors fail in this process because they are surrounded by too much noise that distracts them. After joining the fundamental or technical camp, they often lose control. They often find that their precise control of the future seems a bit self-deceptive, but they only doubt it because everyone around them is doing the same thing. They occasionally shout in anger because of continuous losses, which is impossible. As a result, they will find a group of people who have made huge profits by accurately predicting the market. They will also feel helpless due to heavy losses. They want to cut their losses, but they find that losses are incurred by stop-losses. Only those who hold on to their losses and make more bets can make big money. Every time they try to break free, they are dragged back by endless reality. They feel like they cannot predict the market, but countless people are making accurate predictions and making money. They feel that they should cut losses, but reality often does not give them positive feedback. They feel that they should manage their funds, but they find that those who make big money are all making big bets. They think that fundamental analysis is useless, but a bunch of people will tell them, "I make a profit with fundamental analysis!" They believe that technical analysis cannot predict the future, but someone who has made a hundredfold return will tell them that it was all due to the exclusive MACD strategy. And just when you've struggled and managed to understand a little bit of the logic, you meet a friend who has a funding curve that never retraces and has multiplied his wealth by 8 times in just 2 months, generously sharing his experience with you... Just as you're about to start thinking about how to build a trading system, your wife's friend's boyfriend is hailed as having an unbeatable market sense. It is said that when he places an order, the mountains shake and the heavens weep... True or false, an endless stream of information bombards you. You look at various platform analysis reports every day, listen to the legends of celebrities making huge profits, watch videos on how to analyze and predict, read books, and everyone around you is giving you their "secrets"... Your mind is filled with countless pieces of knowledge and information. And you, in this ocean of information, piece together your own trading cognition. This cognition contains too much content, and you believe it to be correct, but in reality, you cannot imagine how far it is from the truth. This is the fundamental difficulty of trading: insight into the truth of trading. The reason why it is difficult to gain insight into the truth of trading is not only because the truth itself is very secretive, but also because you have to complete this task under endless distractions. Why is this so? Because trading is a field where the ratio is 28:1 or even 19:1, the vast majority of people, including traders, analysts, professionals, media personnel, and XX personnel, fundamentally misunderstand it. However, they do not know that they are wrong. Most people are likely to sincerely and wholeheartedly share their knowledge, but the key is that their understanding of what is correct is itself wrong. Therefore, the market is filled with endless noise and fallacies. These things are mixed together with the truth, forming an endlessly complex information flow. Here, the halo effect, survivorship bias, and unfalsifiability illusions form a maze, making it difficult for people to find a way out. For a trader who wants to become a master trader, their only mission is to extract the truth from this endlessly complex information flow through their own experiences and independent thinking. They need to simplify the complex and unravel the threads in the endless flow of information, identify and discard everything that is incorrect, and form their own trading philosophy. Then, resist endless temptations and execute with consistency. That is why it is said that the core of speculative trading has long been established, and what we need to do is not to innovate, but to understand and execute. This is the difficulty of trading. Therefore, what the trading test is actually testing is a person's trading cognition and understanding of the market. If the cognition is wrong, it is impossible to escape the maze. The trader's entire trading career will be a continuous interweaving of hope and powerlessness, ultimately leading to their downfall. Only when the trading cognition is correct can they truly understand and execute, and eventually reach the end. As the recent popular saying goes, it also applies to the trading field: you can never earn money beyond your trading knowledge range, unless you rely on luck. But the money earned through luck often ends up being lost due to lack of skill, which is inevitable. Every penny you earn is a manifestation of your trading knowledge, and every penny you lose is due to a deficiency in your understanding of trading. The biggest fairness in the speculative world lies in the fact that when a trader's controlled funds exceed their trading knowledge, there are 10,000 ways for the uncertain market trend to harvest them until their knowledge and fund curve match. In the long river of time, real trading knowledge is the only answer.
Education
by Navigation-h
17
GOLD: 3 Reason's why To Invest in Trading education is importantOANDA:XAUUSD 1. Get a Mentor The best asset to your trading is having a knowledgeable mentor in your corner. Even the most well-written book or well-structured online trading course can only cover so many contingencies! When you run into a unique scenario and money -your money – is on the line, why gamble when you could ask someone more experience for help? A mentor can ensure that your trading practices get off on the right foot, as well. If you develop bad habits or emotional triggers early on in your trading career, it’s going to be that much harder to “shake” them later on. Remember: your mentor has likely had the same fears, the same apprehensions and the same mistakes under their belt – learn from their mistakes and the student might even surpass the teacher, in time. 2 Understand What You’re Doing We’re all guilty of coasting somewhere in life – getting the “gist” of something and just letting inertia carry you to a result. Trading, however, is not a High School literature test – it’s an important structure of rules, probabilities and information that could make you a lot of money. It’s not enough to know that cause A affects company B, you’ll need to know why that affect changes things in order to be a knowledgeable trader. Are industry trading magazines, blogs and corporate research efforts a little dry at times? They certainly can be. That doesn’t mean they aren’t important as part of a holistic trading approach. Taking online trading courses may come with an upfront cost, but what they offer in structure and support is priceless. In addition to the course materials, you’ll get access to a community of fellow traders, which will allow you to clarify ideas and discuss strategies with other traders at your level. When it comes to pre-made trading blueprints, following – not blindly following or copying, but keeping an eye on – certain systems will help keep concepts fresh in your mind and promote understanding. That brings us to our final point… 3 Forge Your Own Trading Path The beginning trader could throw a stone and hit a dozen sources that claim they’ve “cracked the code” for 100% successful trading. Not only is that statistically improbable, it’s made to appeal to lazy traders that aren’t willing to put in the work to succeed. No matter how “foolproof” a trading system seems, always filter it through your mentor and your own trading research to ensure it’s worth pursuing. An old saying also holds true, here: don’t count your chickens before they’re hatched. While it’s important to get comfortable with risk in trading, don’t bet the farm when you’re still learning the ropes. As you practice your trades and build confidence in your methods, success will follow naturally.
FX:XAUUSDEducation
by INVESTRONE
Non-farm payrolls data is about to bearish the gold market!Today, the U.S. February quarter-adjusted non-farm payrolls data will be released. Everyone knows that this data will play a key role in the gold market, because the performance of non-farm payrolls will directly affect the fundamental sentiment, which will determine the direction of the gold market in a short period of time.Does the non-farm payrolls data to be released today benefit the gold market or suppress the gold market?Let us make a bold prediction. On Wednesday, the announced value of ADP employment in the United States in February was 242,000, the previous value was 119,000, and the forecast value was 200,000, while the actual announced value of 242,000 was much higher than the previous value and the forecast value. To a certain extent, it shows that the U.S. economy is strong and supports the dollar, thereby suppressing the gold market. On Tuesday, Fed Chairman Powell's hawkish speech suppressed the gold market. However, after Fed Chairman Powell mentioned on Wednesday that the rate of interest rate increases in March depends on the data, the number of initial jobless claims in the United States released on Thursday was 210,000, higher than the previous value of 190,000 and the forecast value of 195,000, reflecting that the tight job market in the United States has still not eased, causing the market's expectations of the Federal Reserve raising interest rates by 50 basis points in March to cool down, US bond yields fell sharply, and the dollar was dragged down, which benefited the gold market. And today's non-farm payrolls data show that the market expects the number of new jobs to be 205,000, compared with the previous value of 517,000. Judging from the ADP data guidance, the non-farm payrolls data show that the market expects the number of new jobs to be higher than the expected value of 205,000, and the number of initial jobless claims in February remained at a comparable level. Although the number of people applying for unemployment benefits at the beginning of the week was as high as 210,000, overall, the number of new jobs in the month will not have much impact, so I think the non-farm payrolls released today will be higher than the expectation of 205,000, thereby suppressing the gold market. It should also be noted that the position of SPDR, the world's largest gold ETF, decreased by 3.47 tons to 903.15 tons on Thursday, a new low since the end of January 2020, suggesting that institutional and professional investors are still inclined to bearish the gold market. It can also be seen from the trend of gold. Although gold has recorded a strong rise in the short term, the strong pressure above still exists. Therefore, the early rise of gold is most likely to be to prepare for non-farm payrolls data and reserve room for the decline of the gold market.Then everyone thinks that the non-farm payrolls data to be released today will benefit the gold market or suppress the gold market?Everyone is welcome to come and discuss. In order to facilitate everyone to continue to follow up on my analysis and sharing, you can like and follow me; in addition, I will share the daily real-time strategy in the channel. If you can't follow up in real time, you may make operational errors.You can use the following methods to enter my channel for free to follow the latest news and follow up on market trends in real time.
OANDA:XAUUSDEducation
by Blessed_V
3
NFP: are you readyWhat is the impact of non-farm data on the gold market? Non-farm data actually consists of two sets of data, the major non-farm data and the minor non-farm data. As these two sets of data reflect the development of the US economy, they not only affect the US dollar index but also often impact the ups and downs of the gold market. Good non-farm data indicates a strong economy and is bearish for gold, while poor non-farm data is bullish for the gold market. The major non-farm data is composed of three indicators published by the US Department of Labor's Bureau of Labor Statistics: non-farm employment, the employment rate, and the unemployment rate. Compared to minor non-farm data, the major non-farm data more directly reflects the current economic situation in the United States. Non-farm data is usually released on the first Friday evening of each month, two days later than minor non-farm data. Investors typically wait for the release of the data and make judgments about the specific trend of gold prices to earn profits. The impact of non-farm data on the gold market is mainly concentrated on these two points in time. The non-farm employment, employment rate, and unemployment rate can directly reflect the development and growth of the manufacturing and service industries in the United States. The better the economic development, the more likely it is to lead to a decline in gold prices, while poor economic development can lead to a certain degree of increase in gold prices. Overall, non-farm data is just one set of data, so in practical operation, major and minor non-farm data can influence the trend of the gold market, but cannot truly determine the trend of the gold market. Are you ready for the upcoming non-farm data release tomorrow? Join the discussion channel to discuss together! Catching the opportunity is key.
OANDA:XAUUSDEducation
by Navigation-h
3
A focus on the importance of support and resistance levelsSupport and resistance levels are the lost art of trading any market. In using support and resistance zones, I also use various MA's (Moving Averages) to assist me in finding the perfect entry. Now no trading strategy is completely waterproof. The market will act and react however it wants to, and a multitude of factors can drastically alter price action so take this advice at your own risk. I'm looking to provide a series of videos to assist me in providing this information in a more clear and more concise manner. Support is a zone at the bottom of a trend or series of trends that acts as a trampoline, or (support) to the upside. Resistance acts as a ceiling, or (resistance) that favors movements to the downside. Draw these zones using either a rectangle on higher timeframes or two horizontal lines. There's not a single price that can act as either support or resistance. To create a larger margin of error, we use these zones. These zones usually make up anywhere from 20-30 pips, depending on the symbol in question. Use the MA's to show you where the trend is heading. Bring in other factors such as market sentiment, geopolitics, economic statistics, news breaks, and anything else that can act as confluence in determining where the market may go next. I use anywhere from 3 to 5 levels of confluence before I even think about entering the market. NEVER impulse trade. I also suggest never trading pre-news. When a red folder news event occurs, the market can shake, or "whipsaw" causing price action to rubberband in either direction. These moves are aimed to close retail traders' accounts, and the market wants nothing more than to take your money. More to come in a future idea - stay tuned. Happy trading, and as always, use responsible risk management when trading any financial market. Swindle
Education
by Swindle
1
The Seven Major Factors Affecting Gold.Firstly, the demand for gold commodities affects the price. In addition to its use as a daily decorative item, gold plays an important role in industry, occupying an irreplaceable position in industries such as dentistry, electronics, and others. As a hedge tool, the price of gold is influenced by demand, and the supply and demand relationship directly affects the price of gold. Changes in production will also affect the gold price, such as the demand for teeth in Japan and the demand for jewelry in India, both of which directly affect the monthly price trend of gold each year. Secondly, the gold output determines the supply-demand balance of gold. The production of gold-producing countries directly affects the supply-demand balance of gold. Currently, China has the largest gold production, followed by South Africa. Any unexpected event, such as strikes and other special situations, will have an impact on the gold price. Thirdly, international interest rates and exchange rates directly affect the gold price. Interest rates and exchange rates have a direct impact on the gold price, especially the trend of the US dollar. The international status of the US gold price directly determines the status of the country's international finance, and the price of the US dollar also directly affects the price of gold. As the US dollar, which also has investment functions like gold, it directly affects the gold price. If the investment trend of the US dollar is strong, gold investment will be relatively less, while the opposite is true for the US dollar in a weak investment market, where the role of gold as a reserve asset and a hedge will be stronger. Fourthly, inflation stimulates the gold price. When the consumer price index rises and inflation affects investments, gold is no exception. When the price fluctuation of a country is severe, and the inflation rate is high, and the price fluctuation is severe, people's panic will intensify. When purchasing power declines, people will worry about future security and choose to buy gold to hedge, which will cause the gold price to continue to rise. Although the current role of gold in fighting inflation is not as significant as before, high inflation will still stimulate the gold price. Fifthly, political situations such as wars can stimulate the gold price. Political instability promotes the rise of the gold price, and war causes a rise in commodity prices, leading to a rise in gold prices. Similarly, as a critical strategic material, the price of gold has a remarkable correlation with the price of oil. When the price of oil rises, the gold price rises as well. Conversely, when the price of oil falls, the gold price also falls. Sixth, as a safe-haven demand, gold is the first choice Due to the small total reserves, the price of gold is relatively stable, and because it has served as a currency, it is an excellent tool for hedging and hedging. As an important hedging tool, gold has strong political sensitivity. Jewelry in prosperous times, gold in troubled times, when the economy is in recession, investment will favor gold more, and it will also directly affect the price of gold. 7. Investors’ psychological expectations The psychological expectations of investors are an important factor affecting the price of gold, but they usually do not act alone. Instead, they often change in conjunction with the variations in the aforementioned factors, amplifying or reducing the expected value of gold and causing significant differences in its price. Following the footsteps of the market, respecting the market, and aweing the market is to follow the market Pay attention to me and you will discover that trading is so simple and enjoyable!
FXOPEN:XAUUSDEducation
by Ice_and_Fire1
SMART MONEY CONCEPTS #1: LIQUIDITY THEORYHi everyone! As you all should know by now, I mainly use smart-money concepts to enter into my trades. Today I will be talking about the concept of liquidity and how to capitalise on it. Looking at the graph, there are 4 main types of liquidity that I use and as stated in the chart, I will normally look for entries off the liquidity grab zones or liquidity hotspots as I would describe. Make sure to backtest and forward test into your chart data to identify which type of liquidity are the most prevalent. There are many many different forms to liquidity zones and knowing when a liquidity grab occur can be a very profitable strategy.
OANDA:XAUUSDEducation
by Jon_Jones_Junior
3
When I take my trades Good evening gold gang, I hope you’re having a good weekend. I thought I’d hop on to share with you the times of day i like to be at the charts. I like to make sure I’m sat down around the most volume, which is normally an hour before opens and the actual opens. I use the sessions indicator to help identify the sessions for backtesting .. just search its name. I’m back Monday for some more gold action .. hope to see you then. Hit the like and follow along! Tommy
OANDA:XAUUSDEducation
by tommyXAU
1
This is my ideal entry model for XAUUSDGood afternoon gold gang! hope you're having a good weekend. I thought id share with you my favourite entry set up for gold which is proven to be over 80 percent accurate according to my data. Im looking for a strong close outside a major level .. by strong i meant 30 pips there abouts .. then the candle to close .. the next candle to wick down to retest the level .. then enter on the break of the previous candles high. Its as simple as that! .. there are other things involved but ill go through them with you in time, so make sure to follow along!! Ill be back this evening with an outlook for tonights asian and tomorrows london and ny sessions Tommy
OANDA:XAUUSDEducation
by tommyXAU
3
GoldViewFX - THE ART OF RANGE MANAGEMENT Hey Everyone, Here at GVFX, we are currently buying dips. What that means is that we buy on the dips and therefore only concentrate on long positions/buys with the odd sells for fun. As mentioned before, having both sell and buy positions open in your account will affect your psychology and in turn, your trading decisions. Now a question that typically arises here is why would it still be advisable to buy when the market is pushing down? Firstly, let me assure you that the same algorithms, experience and strategies that we use to achieve a 97% hit rate with our bullish directional bias also gives us the heads up, or down if you will, on when the market is going down. Don't think for a moment that we only know how to analyse a bull market or up trends. We share targets/signals for both buys and sells but choose not to hedge out of choice. Our published results remain consistently profitable month in month out!! In my experience, in the current market conditions, it is much safer to get out of a stuck buy position than a stuck sell position. That's not to mention the clean PSYCHOLOGICAL PROFILE that is achieved when trading in just one direction. And although hedging can in theory work, it requires years of experience and in the end, is simply not worth the effort. I am more than capable of hedging effectively but the fact that I do not should tell you something. Let us look at an example to further answer the question highlighted above. When you have short-term bearish momentum down, we take buys from key supports or MAs which act as dips. Remember that the market does not go up or down in a straight line (with the rare exception of short-lived parabolic moves). So, when the market is going down and hits one of our key levels, a buy from that point will go back up for 20 to 30 or 30 to 40 pips (this number of pips has been calibrated based on back testing) before resuming back down. You can think of it like this. The market moves in a zigzag manner. The zig is that part of the leg which is going down to create lower lows (if the downward trend is continuing). The zag is that part of the leg which takes a breather and pushes back up with momentum for our entry and quick pip-take range to create a lower high (if the downward trend is continuing) before heading back down again. We catch the right and safest waves (buys) in and out and surf to success. When price hits a key structural support or stops creating lower lows and lower highs, we then reassess for entries with a wider range of pip capture. Hope this post helps our followers to understand how we keep our psychology strong!! GoldViewFX XAUUSD TOP AUTHOR
OANDA:XAUUSDEducation
by Goldviewfx
18
Recap of my trade for todayGood evening and good afternoon for American traders, I shared an idea where I said to buy NATURALGAS and I want to give a quick recap in order to encourage new traders to hold their trades for long time. I have drawn on the chart all the points I added contracts after the pullback on the vwap which plays a strong support and resistance role in my trading system. After seeing the configuration I follow to close, I kept waiting for several candles and added on more contract just for fun since I sat the SL right below the last contract I opened and kept watching for a while what will happen, then I noticed low volumes and I closed at the end of the small candle. See you tomorrow in a new trade !
NEducation
by YassineAnalysis
Leading Indicators To Improve Decision Making in Oil TradingHello Traders! As you know, trading is a game of probabilities and navigating the financial markets is not always easy. Different strategies that we use, such as Elliott wave analysis and pattern trading, can provide different scenarios for market movements. However, market conditions are often uncertain and can extend beyond what is predicted by these strategies. In such cases, it is useful to have access to scientifically proven tools that can help us better assess the probabilities of different scenarios. One such tool is the use of leading indicators. In this educational idea, we will explore the use of a leading indicator for Wti prices that embodies information from futures term spread and Relative Inventories. Correlation with Relative Inventories is due to the basic supply and demand dynamics of the market. When inventories are high, there is an oversupply of oil which puts downward pressure on prices. Conversely, when inventories are low, there is a shortage of oil which puts upward pressure on prices. Another useful metric for predicting oil prices is the term spread. The term spread refers to the difference between the prices of two oil contracts with different delivery dates. Researchers have found that changes in the term spread can be a leading indicator of future prices. The relationship between the term spread and oil prices comes from the fact that the term spread reflects changes in market expectations about future supply and demand for oil. Studies have confirmed the predictive power of both relative inventories and the term spread. Starting in a seminar paper by Hamilton (1983), it was demonstrated that changes in inventories had a significant impact on future oil prices. Similarly, other research has shown that changes in the term spread have a strong correlation with future oil price movements (e.g., Kilian and Murphy, 2009), and now there are a vastity of academic paper that explores that correlations and the predictive possibilities. Here another couple of references: www.sciencedirect.com gupea.ub.gu.se Now, I want to bring you an example of how these empirical result can be exploited and used in trading. In the main chart indeed I show an indicator constructed to reproduce the forecasting model proposed in the last article that I linked (Larsson, 2018). This Forecasting Model is a time series ARIMA model that uses both relative inventories and term spread between 3-months ahead contract and the 40-months ahead contract, together with squared relative inventories to capture non linearities in the relation between inventories and wti price. You can see the forecasted model in the red line, while the blue line is the weekly oil closing price. I will report again here the chart for clarity: After the uptrend ended, in which the forecasting model overshooted before crossing back, we can see that every time the red line (forecasting model) retested the blue line (actual price) the retest was followed by a strong decrease in price. This was use for us as confirmation for our bearish scenario on oil, that we are still trading. I hope you can find this post useful! If you have any comment, please share, we will be happy! Cheers, GMR
TVC:USOILEducation
by GMR-Capital
5
TECHNICAL ANALYSIS is the new KING ok here me out. i'll go straight to point this message is for the newbies (oldies gonna hate) what is pure Minimalist Technical Analysis Trader ( MTAT : i just made this up) -it is when u leave out all so-called indicators and focus on the chart -some of these indis are: MACD, RSI, ATR, STOCHT.... -it's when u leave out the FUNDAMENTAL analysis and focus on the chart pattern - i'm talking here about financial news and garbage flash news - didn't u sometimes realize that a news come out, but the dollar act contrary to the news it-self? HOW TO APPLY this MTAT ? let's be practical, but first u need to watch so many charts until ur eyes pops out (it's a prerequisite). 1- always pick a 4h-time frame chart 2- always brush ur teeth before bed time 3- always look for a bullish pair to trade (this is essential for the plan to succeed) 4- after identifying the bullish pair, start looking for SUpport & Resistance...but never make the chart too complicated, u really need like 2-4 lines drawn only 5- after u draw the S&R lines, look for retracements (the pair is going down slightly) 6- use the FIBONACCI drawing tool and draw from the lowest to highest point (before the retracement) 7- it's best to focus on the 61.8% line 8- look for a confirmation candle: a- a red Bar, which the low point of it touched (crossed) the 61.8% Fib line b- followed by a green bar which closed ABOVE THE fib 61.8% line c- place ur buy trade when the green candle closes 9- how to set your target: a- use the (-61.8% or -100%) FIb levels or b- use the Resistance line u drawn previously now the question is, do u really need MACD or RSI or STOCH? of course NO, if you google it, u'll know that these reflects previous price actions? so why use it for FUTURE price actions? what to do when big news are coming out? IT WILL ACT ACCORDINGLY THE PREVIOUSLY SET CHART PATTERN...this will never fail you DO YOU PLACE STOP ORDERS? NEVER, never put pre-set stop orders, you should be active on ur screen and wait for the price to fall to the price u set as a stoploss, AND CLOSE TRADE MANUALLY WHY?, because when we have big news, we have volatility the pair will go up and down so hard to close all stoploss orders then it will continue to obey the technical chart pattern as a fukn slave! let's practice: use the FIB Ret tool: identify the red and green candle: place your buy order: et voila.... #STOP_BEING_POOR
XEducation
by meez_PremiumNOT
2
trade gold in the right way and get a fixed target of 600 PIP'sBreakout trading is used by active investors to take a position within a trend's early stages. Generally speaking, this strategy can be the starting point for major price moves, expansions in volatility and, when managed properly, can offer limited downside risk. Throughout this article, we'll walk you through the anatomy of this trade and offer a few ideas to better manage this trading style. A breakout is a potential trading opportunity that occurs when an asset's price moves above a resistance level or moves below a support level on increasing volume. The first step in trading breakouts is to identify current price trend patterns along with support and resistance levels in order to plan possible entry and exit points. Once you've acted on a breakout strategy, know when to cut your losses and re-assess the situation if the breakout sputters. As with any technical trading strategy, don't let emotions get the better of you. Stick with your plan and know when to get in and get out. What Is a Breakout? A breakout is a stock price moving outside a defined support or resistance level with increased volume. A breakout trader enters a long position after the stock price breaks above resistance or enters a short position after the stock breaks below support. Once the stock trades beyond the price barrier, volatility tends to increase and prices usually trend in the breakout's direction. The reason breakouts are such an important trading strategy is because these setups are the starting point for future volatility increases, large price swings and, in many circumstances, major price trends. Breakouts occur in all types of market environments. Typically, the most explosive price movements are a result of channel breakouts and price pattern breakouts such as triangles, flags, or head and shoulders patterns. As volatility contracts during these time frames, it will typically expand after prices move beyond the identified ranges. Regardless of the timeframe, breakout trading is a great strategy. Whether you use intraday, daily, or weekly charts, the concepts are universal. You can apply this strategy to day trading, swing trading, or any style of trading. Finding a Good Candidate When trading breakouts, it is important to consider the underlying stock's support and resistance levels. The more times a stock price has touched these areas, the more valid these levels are and the more important they become. At the same time, the longer these support and resistance levels have been in play, the better the outcome when the stock price finally breaks out. As prices consolidate, various price patterns will occur on the price chart. Formations such as channels, triangles, and flags are valuable vehicles when looking for stocks to trade. Aside from patterns, consistency and the length of time a stock price has adhered to its support or resistance levels are important factors to consider when finding a good candidate to trade. Entry Points After finding a good instrument to trade, it is time to plan the trade. The easiest consideration is the entry point. Entry points are fairly black and white when it comes to establishing positions on a breakout. Once prices are set to close above a resistance level, an investor will establish a bullish position. When prices are set to close below a support level, an investor will take on a bearish position. To determine the difference between a breakout and a fakeout, wait for confirmation. For example, fakeouts occur when prices open beyond a support or resistance level, but by the end of the day, they wind up moving back within a prior trading range. If an investor acts too quickly or without confirmation, there is no guarantee that prices will continue into new territory. Many investors look for above-average volume as confirmation or wait toward the close of a trading period to determine whether prices will sustain the levels they've broken out of. Planning Exits Predetermined exits are an essential ingredient to a successful trading approach. When trading breakouts, there are three exit plans to arrange prior to establishing a position. 1. Where to Exit With a Profit When planning target prices, look at the stock's recent behavior to determine a reasonable objective. When trading price patterns, it is easy to use the recent price action to establish a price target. For example, if the range of a recent channel or price pattern is six points, that amount should be used as a price target once the stock breaks out (see below). Another idea is to calculate recent price swings and average them out to get a relative price target. If the stock has made an average price swing of four points over the past few price swings, this would be a reasonable objective. These are a few ideas on how to set price targets as the trade objective. This should be your goal for the trade. After the goal is reached, an investor can exit the position, exit a portion of the position to let the rest run, or raise a stop-loss order to lock in profits. 1 2. Where to Exit With a Loss It is important to know when a trade has failed. Breakout trading offers this insight in a fairly clear manner. After a breakout, old resistance levels should act as new support and old support levels should act as new resistance. This is an important consideration because it is an objective way to determine when a trade has failed and an easy way to determine where to set your stop-loss order. After a position has been taken, use the old support or resistance level as a line in the sand to close out a losing trade. As an example, study the PCZ chart below. After a trade fails, it is important to exit the trade quickly. Never give a loss too much room. If you are not careful, losses can accumulate. 3. Where to Set a Stop Order When considering where to exit a position with a loss, use the prior support or resistance level beyond which prices have broken. Placing a stop comfortably within these parameters is a safe way to protect a position without giving the trade too much downside risk. Setting a stop higher than this will likely trigger an exit prematurely because it is common for prices to retest price levels they've just broken out of. Looking at the above chart, you can see the initial consolidation of prices, the breakout, the retest, and the price objective reached. The process is fairly mechanical. When considering where to set a stop-loss order, had it been set above the old resistance level, prices wouldn't have been able to retest these levels and the investor would have been stopped out prematurely. Setting the stop below this level allows prices to retest and catch the trade quickly if it fails. Summary In summary, here are the steps to follow when trading breakouts: Identify the Candidate: Find stocks that have built strong support or resistance levels and watch them. Remember, the stronger the support or resistance, the better the outcome. Make sure you understand this when you shop for stocks. Wait for the Breakout: Finding a good candidate does not mean a trade should be taken prematurely. Wait patiently for the stock price to make its move. To be sure the breakout will hold, on the day the stock price trades outside its support or resistance level, wait until near the end of the trading day to make your move. Set a Reasonable Objective: If you are going to take a trade, set an expectation of where it is going. If you don't, you won't know where to exit the trade. This can be done by calculating an average move the stock makes or measuring the distance between support and resistance (especially when trading price patterns). Allow the Stock to Retest: This is the most critical step. When a stock price breaks a resistance level, old resistance becomes new support. When a stock breaks a support level, old support becomes new resistance. In the majority of your trades, the stock will test the level it has broken after the first couple of days. Prepare for it. Know When Your Trade/Pattern Has Failed: When the stock attempts to retest a prior support or resistance level and it breaks back through it, this is where a pattern or breakout has failed. It is imperative you take the loss at this point. Don't gamble with your losses. Exit Trades Toward the Market Close: You can't discern at the open whether prices will hold at a particular level. This is why you might consider waiting until near the market close to exit a losing trade. If a stock has remained outside a predetermined support or resistance level toward the market close, it is time to close the position and move on to the next. Be Patient: This strategy requires plenty of patience. By following these steps, you will reduce emotion and be more objective about a trade. Exit at Your Target: If you are not exiting the trade with a loss, then you are in the trade. You should remain in the trade until the stock price reaches its objective or you reach your time target without hitting your target price. The Bottom Line Breakout trading welcomes volatility. The volatility experienced after a breakout is likely to generate emotion because prices are moving quickly. Using the steps covered in this article will help you define a trading plan that, when executed properly, can offer great returns and manageable risk.
TVC:GOLDEducation
by GentleGoldenEngine
20