How to Trade Gold: Top Gold Trading Strategies and Tips
Gold trading is not an easy topic to understand because the yellow metal does not move in the same way as other commodities or currency pairs on the Forex market. However, there are some well-known strategies for success in gold trading.
Trading in the news
Aside from the usual statistics, political and economic factors, global disasters, terrorist attacks, and crises all have an impact on gold. The reason for this is that gold is inextricably linked to various markets, including equity and raw materials.
Gold price dynamics do not follow conventional logic. Only after major releases or events can traders profit from trading on the news. It is strongly advised not to open the position immediately following the event, as you do not know where the price will go. For example, a sharp drop in the equity market causes the gold price to rise. As a result, long positions are possible.
Correlations in fundamental trading strategy
It’s no secret that gold has a strong inverse relationship with the US currency. This suggests that gold and the US dollar are moving in opposite directions. When gold is in the green, the USD is in the red, and vice versa. A nice thing to know is that one of the forms will be ahead of the other and you will have an opportunity to profit.
Here is a strategy for trading gold based on its correlation with the USD.
To begin, open both the gold price chart and the USD cross currency pair (for example, USD/JPY) on your platform. Both of the charts must be set to the same timeframe (for example, H1).
Second, identify the important support and resistance levels on both charts and watch for breakouts. In addition, look at the candlestick shapes to determine the price’s likely future direction.
Take notice that sometimes a resistance line can be found on the USD/JPY chart but no visible support can be found on the gold chart. The breakout of the resistance on the USD/JPY chart, on the other hand, will be followed by a sell signal on the Gold chart. As a result, if the USD is strong on the USD/JPY, it will be a signal to sell gold.
on the USD/JPY chart, a resistance line
on the Gold chart, a sell signal
A bearish candlestick emerged on the USD/JPY H1 chart. It was a clear signal to buy gold. If a trader seizes this chance, he can benefit handsomely from the growing price of gold.
Gold, on the other hand, has a positive association with the AUD/USD. Australia is known as one of the world’s largest gold producers. That is why the Reserve Bank of Australia should maintain a healthy level of gold reserves. The gold price responds to Australian fundamental data or Reserve Bank of Australia monetary policy adjustments. On the graph below, interest rate reduction in 2016 resulted in the sale of gold.
Daily XAUUSD chart
Trading plan for the seasons
seasonal trading plan
Gold’s price changes are associated with its seasonal rhythm. Gold might be stronger at certain times of the year and weaker at others. Furthermore, these times recur periodically throughout the year. Gold prices tend to rise in the first quarter of the year as well as in the last months of the year.
The first step is to purchase gold during months when the price of gold tends to rise. It usually happens in the start of the year (in January and February).
Wait for more confirmations based on technical figures, oscillators (MACD, RSI), and candlestick patterns for a probable reversal.
Make a long position in gold if it follows its seasonal pattern in January.
Profits should be taken before the end of February. Remember that if gold follows its regular pattern in the first few months, the seasonal cycle will most likely continue. March is the worst month for trading gold, according to the seasonal pattern, thus it is best to close your position before it.
Tip: The gold spot price reflected in the charts is established between 10:30 and 15:00 GMT after various auctions held by the leading actors in the gold market. During this time, the majority of traders open or close their positions. As a result, it is advised to trade gold within certain time frames.
The unique nature of gold necessitates the employment of specialized trading procedures. You can employ either the correlation strategy or the seasonal change strategy. However, keep in mind that all of the factors that can potentially effect gold must be considered. This will protect you from risks and increase the profitability of your trading.