7 Mistakes Every Gold Trader Must Avoid
EVERY TRADING PLAN MUST INCLUDE THE FOLLOWING POINTS:
Targeted profit level - Include a price point to close the investment out for a profit. This is important to avoid falling into a trap where gains are reversed for sitting on a trade too long. When you finish your plan, ask yourself: Does the plan make sense? Does the trade make sense? Does the trade fit your plan? For some readers that may seem frivolous, but you would be surprised as to how many trades, even those taken by professional traders, have not been thought out in advance. Right now your head is clear, and you can approach the market with a neutral attitude. This is in contrast to hemming and hawing about what to do once the market moves after the position has been established.
Fear and greed are common where money is involved. Once you have a position on and real funds at stake, these two will make an appearance. The market may move against you swiftly. If you had planned to risk only a certain amount, take the loss. Of course the market could move in your favor, so prepare what steps to take to protect your profit. Have a goal and realize it. Use the tools the market might provide to assist you in protecting your position to let your profit grow. Above all, don’t hem and haw as to what to do.
comfortable with using an approach that has a proven record of success for you and don’t agonize.
Most investors won’t acknowledge that an asset could turn against them. They invest assuming they’ll be successful, refusing to look in the rearview mirror. It’s also common for emerging traders to use a calculator to predict how much they’ll make and how they’ll spend the unrealized profits! Whoa! It’s dangerous to
anticipate how much you’ll The macro picture should never be ignored. If it is, there is a chance to get caught in a bull or bear trap. Having an entrenched bias in any market or with any asset is dangerous and risky. Be willing to adapt as new information becomes available and mark that new data against your investment plan. As Kenny Rogers famously said, “Know when to hold ‘em, know when to fold ‘em, know when to walk away, know
with that notion. It’ll help you as you
discover that taking make in advance. Gold bugs are not immune to this kind of starry-eyed conclusion. Gold has a particular allure and luster that spans centuries and it is easy to get caught with gold fever. The problem is, it hasn’t been that long since gold was
at record low prices. profits can be an art form. Markets are not one directional, and within every long term trend there are intermediate and
It is natural to look to the things you are familiar with when you are doing your analysis. For some investors, this means reading domestic news and weighing that within their price forecasts for gold. The problem is that the marketplace is global. One must be as aware of international news and economic forces that might play or weigh on the price of precious metals. Sure, gold is priced in US dollars – but shifting concerns in the Euro zone or China are just as likely to move prices dramatically and bring market volatility. Don’t forget to take into consideration the activities that can be happening within the investment realm. There are plenty of motivating factors for gold price trends that might not make headlines on the morning business broadcasts. Algorithmic trading programs have been rumored to take into consideration the typical risk perspective of smaller traders and to use that in an effort to
push prices into levels where sizable stops are likely housed. Whether true or not it, in some markets there are indeed areas where the likelihood of stop orders increases. By knowing the standard deviation in your market and using technical analysis, you can learn to better identify such areas and
learn to avoid being part of the herd. Educate yourself to strategically place your stops at a level that is less apt to get triggered along with the masses. It takes patience and practice, but if you wish to avoid being knocked out of a position prematurely you ought to consider improving the placement of your stop orders. Computers
It is easy to get caught up in the game. No matter what gold investment
you
trading. You should already have developed a trading plan, so sticking
to it
One of the biggest mistakes that can crop up in gold trading is getting caught up in the belief that there are
unimaginable riches just waiting to be tapped. There is no promised glory land that will appear just because you want it bad enough. There is profit potential, and there is a risk of loss, but lay everything on the line searching for El Dorado and you risk disappointment as well. Try to take smaller nibbles rather than huge bites at profit. There are plenty of traders who sat too long on the plus side of a trade, worrying that an early exit would cost them money. Find the reasonable exit that you formulated as part of your plan and stick to it. Sure, there are plenty of arguments that suggest inflation-adjusted gold could be prices in the thousands of dollars. However,
MISTAKE #1 - TRADING WITHOUT A PLAN
Before you participate in any kind of investment, you should have a master plan that is prepared and understood before entering into any trade. Take the time to perform due diligence having a coherent outline will help you avoid many of the common pitfalls of trading.
EVERY TRADING PLAN MUST INCLUDE THE FOLLOWING POINTS:
Suitable Trading Medium - Different gold markets have different advantages and disadvantages.
Know them both and make sure you select an investment that suits your comfort zone for risk exposure. Gold stocks don’t always mirror the physical gold market and vice versa. Be a student of your investment. Study it, read up on it, and get comfortable with it. Make sure you enter that market with a sufficient understanding of how it works.
Defined entry level - Have clear technical or fundamental reasoning for your buy or sell price. Wait for it
and avoid jumping in just to be part of the melee.
and avoid jumping in just to be part of the melee.
Clear risk management structure - Prepare precise exit points for when the market moves against you. Know what your risk tolerance level is, and be prepared to pull the plug if the trade doesn’t go your way. Smart money should also have specific exit points where you can scale out when the trade moves in your favor. Having multiple scale out points can work to cover costs, preserve gains, and still leave something on the table for more potential profits.
Targeted profit level - Include a price point to close the investment out for a profit. This is important to avoid falling into a trap where gains are reversed for sitting on a trade too long. When you finish your plan, ask yourself: Does the plan make sense? Does the trade make sense? Does the trade fit your plan? For some readers that may seem frivolous, but you would be surprised as to how many trades, even those taken by professional traders, have not been thought out in advance. Right now your head is clear, and you can approach the market with a neutral attitude. This is in contrast to hemming and hawing about what to do once the market moves after the position has been established.
MISTAKE #2 - GETTING EMOTIONAL ABOUT GOLD
Stick to your trading plan. Having those barriers and limits will help
you keep your emotions in check.
The reason many emerging traders fail to consistently earn profits is
because of their perceptions of money. Find methods to desensitize yourself to
the emotional connection to money. Consider trading smaller size increments. Trading in smaller quantities can help minimize both the losses and the emotional distress that often comes with losing larger amounts of
capital. As your experience grows, then you can consider upping the ante.
Fear and greed are common where money is involved. Once you have a position on and real funds at stake, these two will make an appearance. The market may move against you swiftly. If you had planned to risk only a certain amount, take the loss. Of course the market could move in your favor, so prepare what steps to take to protect your profit. Have a goal and realize it. Use the tools the market might provide to assist you in protecting your position to let your profit grow. Above all, don’t hem and haw as to what to do.
The market is unforgiving and takes no prisoners. Executeyour plan –
after all, that’s why you have one. Running “what if” scenarios in advance will assist and greatly improve your understanding in devising an appropriate response to whatever outcome you face. Following through is the key. Such techniques will help you in keeping your emotions in check by being mechanical. Never forget that your emotions will surprise you as the market moves in your favor, or against your position. Successful traders understand this and prepare in advance
rather than wing it.
MISTAKE
#3 - OVER THINKING THINGS
Whether you are buying and selling physical bullion or trading in gold derivatives, it is easy to get caught up in
the dazzle from the internet and TV. There is no shortage of people willing to sell you their outlooks, analysis and systems. The best suggestion is to find what works for you. Fundamental analysis can happen in a keystroke. Global economic reports are at everyone’s fingertips. The techniques available for technical analysis have expanded with the use of computers. Be aware of the outlets for analysis, but don’t get bogged down by them. Once you find something that works for you, stick with it and refine it. There is no holy grail. Become
comfortable with using an approach that has a proven record of success for you and don’t agonize.
Once you have actually taken a position or have an investment in hand, prepare to react and take appropriate action. Have a
firm exit plan with stop loss orders, if possible. They can take the decision making out of your
hands when it’s time to realize a loss and move on. Have a reasonable profit objective and exit your investment when it is attained. It doesn’t happen often enough, but getting out too early can be an emotional experience - sometimes worse than losing. Monitoring a position can become a full time job. The market can do one of three things: go up, go down, or sit there. You should have a plan of action in place to react to all three and be willing and able to follow through on that plan. That will prevent you from falling victim to paralysis by analysis,
or hemming and hawing. Inaction can result in losing more than you planned and prepared for, or worse – losing profits. There is nothing worse than
watching a winning trade turns into a loser.
MISTAKE #4 - GETTING TUNNEL VISION FOR YOUR BIAS.
when to run.” Any gold trader worth his salt will advise you that it’s a good idea to become familiar
with that notion. It’ll help you as you
discover that taking make in advance. Gold bugs are not immune to this kind of starry-eyed conclusion. Gold has a particular allure and luster that spans centuries and it is easy to get caught with gold fever. The problem is, it hasn’t been that long since gold was
at record low prices. profits can be an art form. Markets are not one directional, and within every long term trend there are intermediate and
shorter term trends. Identifying and studying these shorter term trends will serve to assist in choosing a more precise entry to, or exit from, a position.There are numerous ways to lock in a profit, but none better than
offsetting the position. Once you’ve reached your profitable objective set forth in your trading plan, unwind
the trade - that’s it you’ve won! Congratulations!
MISTAKE #5 - THINKING LOCAL INSTEAD OF GLOBAL
learn to avoid being part of the herd. Educate yourself to strategically place your stops at a level that is less apt to get triggered along with the masses. It takes patience and practice, but if you wish to avoid being knocked out of a position prematurely you ought to consider improving the placement of your stop orders. Computers
can help you see the bigger picture. Discovering the regularities and nuances in each market is difficult, and requires constant vigilance and study. Markets are dynamic, ever-changing, and adapting. You should be just
as willing to consistently devote the time, effort, and energy necessary to be a student of your market. Learn to step back and see the big picture for gold.
MISTAKE #6 - TRADING WITH THE HERD
are participating in, there is a lot of adrenaline and emotion that goes
with
trading. You should already have developed a trading plan, so sticking
to it
should be easy no matter what the crowd is doing. Note that this is
different than trend following. What matters here is avoiding hype. The old trading adage, “Buy the rumor, sell the fact” speaks to the kind of over-inflated action that can crop up at times. Be wary of a stampede in one direction or
another, and as long as your planned exits are not
triggered, there is probably
no reason to run.
MISTAKE
#7 - SHOOTING FOR THE MOON
unimaginable riches just waiting to be tapped. There is no promised glory land that will appear just because you want it bad enough. There is profit potential, and there is a risk of loss, but lay everything on the line searching for El Dorado and you risk disappointment as well. Try to take smaller nibbles rather than huge bites at profit. There are plenty of traders who sat too long on the plus side of a trade, worrying that an early exit would cost them money. Find the reasonable exit that you formulated as part of your plan and stick to it. Sure, there are plenty of arguments that suggest inflation-adjusted gold could be prices in the thousands of dollars. However,
if gold is headed in that direction, it will have many pit stops along the way and plenty of profit taking
opportunities. Never forget the wisdom, “You can’t go broke taking a profit.”
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