A Simple Gold Trading Strategy

Gold prices recently reached almost $1,400 per troy ounce before making a retracement. Gold market is in an unprecedented uptrend for the last many years. Many analysts are predicting that gold prices can reach as high as $2,500 in the next six to twelve months. Nobody knows! Nobody was expecting the gold prices to make a retracement. But trends never move in straight lines. Prices move up or down, they consolidate and make a retracement and then start moving up or down again. Silver is another precious metal that is expected to skyrocket in the next few years.

Let’s illustrate this precious metals trading strategy with an example. A gold futures contract consists of 100 ounces. Now, the margin requirements can vary from one broker to another but it is generally around $5,000. This means you can control 100 ounces of gold with $5,000. Each point the gold futures contract moves up or down, you make $10 or lose $10. Suppose, you bought the gold futures contract and it moved up by 50 points. You make $500 less the commission and other fees.

Let’s get back to our gold trading strategy. Suppose, you buy one gold futures contract that means 100 ounces of gold. It closes up by 30 points in the next few days. You are happy. By the end of the week, it gains another 20 points. You sell your gold futures contract. So, with this one gold futures contract you have made 50 points. 50 points means $500 profit. This is your first trade in a series of four trades that ended in a $500 profit.

Now, you make your second trade by buying two gold contracts as the gold market is in an uptrend and you are confident that it will continue to do so for the short term. You wait for a few days and the contract is up by 50 points by the end of the week. You sell your two contracts and take profit of $1,000. By selling the two contracts, you just completed the second trade in your series of four trades.

Gold prices always rise when there is uncertainty in the global economy. In times of uncertainty, wealthy investors tend to run towards gold. Suppose, rumors are flying high about some event in the world and this is increasing the uncertainty in the financial markets. Gold prices are on the rise again. You now buy three gold contracts. By the end of the week, each contract is up by 100 points. You make a cool $3,000 when you sell the three contracts. This way, you complete your third trade in a series of four trades.

This completes the third trade in the series of four trades. Now, you are ready for the fourth trade. You watch the market. It is moving up again. You enter with four contracts this time. You wait for a few days and the market is up by 50 points. You sell all the four contracts and make a profit of $2,000. Your total profit in this series of four trades is $6,500. This profit you made in just a matter of few weeks which is not bad. After you complete a series of four trades, you remove the profit from your account. Now, you can start all over again with a new series of four trades. The first trade in this series of four trades will always be with one contract.

You can make these four trades again and again starting from scratch after each four trades. After each four trades, you remove the profit and start again small. This way, you reduce your risk of losing all your profits if the market suddenly moves against you. This is how professional gold traders trade and this is how you should trade. You must have observed that their is nothing much in this gold trading strategy. That’s what it is and that’s how you should keep it!

Mr. Ahmad Hassam has done Masters from Harvard University. Trade Gold with this Forex Signals from two top gun traders. Read this Gold Mining Stocks Guide from two pro investors.

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