Fit 7 mistakes_gold_traders_make


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mistakes to avoid when trading gold

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Fit 7 mistakes_gold_traders_make

  1. 1. 7 Mistakes Every Gold Trader Must Avoid
  2. 2. Mistake #1 - Trading without a planBefore you participate in any kind of investment, you should have a master plan that is prepared and understood beforeentering into any trade. Take the time to perform due diligence having a coherent outline will help you avoid many of thecommon pitfalls of trading.Every trading plan must include the following points:Suitable Trading Medium - Different gold markets have out when the trade moves in your favor. Having multipledifferent advantages and disadvantages. Know them both scale out points can work to cover costs, preserve gains,and make sure you select an investment that suits your and still leave something on the table for more potentialcomfort zone for risk exposure. Gold stocks don’t always profits.mirror the physical gold market andvice versa. Be a student of your Targeted profit level - Include ainvestment. Study it, read up on it, price point to close the investment outand get comfortable with it. Makesure you enter that market with a 1 Solution: for a profit. This is important to avoid falling into a trap where gains aresufficient understanding of how it reversed for sitting on a trade too Have a plan - think through When you finish your plan, askDefined entry level - Have clear your gold investment. yourself: Does the plan make sense?technical or fundamental reasoning Does the trade make sense? Does thefor your buy or sell price. Wait for it trade fit your plan? For some readersand avoid jumping in just to be part of the melee. that may seem frivolous, but you would be surprised as to how many trades, even those taken by professionalClear risk management structure - Prepare precise traders, have not been thought out in advance. Right nowexit points for when the market moves against you. Know your head is clear, and you can approach the market with awhat your risk tolerance level is, and be prepared to pull neutral attitude. This is in contrast to hemming and hawingthe plug if the trade doesn’t go your way. Smart money about what to do once the market moves after the positionshould also have specific exit points where you can scale has been established.Mistake #2 - Getting emotional about goldStick to your trading plan. Having those barriers and limits will help you keepyour emotions in check.The reason many emerging traders fail to consistently earn profits is becauseof their perceptions of money. Find methods to desensitize yourself to the 2 Solution:emotional connection to money. Consider trading smaller size increments. Check your heart at the door.Trading in smaller quantities can help minimize both the losses and theemotional distress that often comes with losing larger amounts of capital. Asyour experience grows, then you can consider upping the ante. 2
  3. 3. Fear and greed are common where money is involved. Once your plan – after all, that’s why you have one. Runningyou have a position on and real funds at stake, these two “what if” scenarios in advance will assist and greatlywill make an appearance. The market may move against improve your understanding in devising an appropriateyou swiftly. If you had planned to risk only a certain amount, response to whatever outcome you face. Following throughtake the loss. Of course the market could move in your is the key. Such techniques will help you in keeping yourfavor, so prepare what steps to take to protect your profit. emotions in check by being mechanical. Never forget thatHave a goal and realize it. Use the tools the market might your emotions will surprise you as the market moves inprovide to assist you in protecting your position to let your your favor, or against your position. Successful tradersprofit grow. Above all, don’t hem and haw as to what to do. understand this and prepare in advance rather than wing it.The market is unforgiving and takes no prisoners. ExecuteMistake #3 - Over-thinking thingsWhether you are buying and selling physical bullion or action. Have a firm exit plan with stop loss orders, iftrading in gold derivatives, it is easy to get caught up in possible. They can take the decision making out of yourthe dazzle from the internet and TV. There is no shortage hands when it’s time to realize a loss and move on. Haveof people willing to sell you their a reasonable profit objective and exitoutlooks, analysis and systems. your investment when it is attained.The best suggestion is to find what It doesn’t happen often enough,works for you. Fundamental analysiscan happen in a keystroke. Global 3 Solution: but getting out too early can be an emotional experience - sometimeseconomic reports are at everyone’s worse than losing.fingertips. The techniques available Find streamlined analysis orfor technical analysis have expanded a trading system for gold that Monitoring a position can become awith the use of computers. Be aware works for you. full time job. The market can do oneof the outlets for analysis, but don’t of three things: go up, go down, orget bogged down by them. Once you sit there. You should have a plan offind something that works for you, action in place to react to all threestick with it and refine it. There is no holy grail. Become and be willing and able to follow through on that plan. Thatcomfortable with using an approach that has a proven will prevent you from falling victim to paralysis by analysis,record of success for you and don’t agonize. or hemming and hawing. Inaction can result in losing more than you planned and prepared for, or worse – losingOnce you have actually taken a position or have an profits. There is nothing worse than watching a winninginvestment in hand, prepare to react and take appropriate trade turn into a loser.Mistake #4 - Getting tunnel vision for your biasMost investors won’t acknowledge that an asset could turn make in advance. Gold bugs are not immune to this kind ofagainst them. They invest assuming they’ll be successful, starry-eyed conclusion.refusing to look in the rearview mirror. It’s also commonfor emerging traders to use a calculator to predict how Gold has a particular allure and luster that spans centuriesmuch they’ll make and how they’ll spend the unrealized and it is easy to get caught with gold fever. The problem is,profits! Whoa! It’s dangerous to anticipate how much you’ll it hasn’t been that long since gold was at record low prices. 3
  4. 4. The macro picture should never be ignored. If it is, there profits can be an art form. Markets are not one directional,is a chance to get caught in a bull or bear trap. Having and within every long term trend there are intermediate andan entrenched bias in any market or shorter term trends. Identifying andwith any asset is dangerous and risky. studying these shorter term trendsBe willing to adapt as new information will serve to assist in choosing abecomes available and mark that newdata against your investment plan. 4 Solution: more precise entry to, or exit from, a position.As Kenny Rogers famously said, “Know Remember that gold prices There are numerous ways to lockwhen to hold ‘em, know when to fold can move up or down. in a profit, but none better than‘em, know when to walk away, know offsetting the position. Once you’vewhen to run.” Any gold trader worth his reached your profitable objectivesalt will advise you that it’s a good idea to become familiar set forth in your trading plan, unwind the trade - that’s it,with that notion. It’ll help you as you discover that taking you’ve won! Congratulations!Mistake #5 - Thinking local instead of globalIt is natural to look to the things you are familiar with when levels where sizable stops are likely housed. Whether trueyou are doing your analysis. For some investors, this means or not it, in some markets there are indeed areas wherereading domestic news and weighing that within their price the likelihood of stop orders increases. By knowing theforecasts for gold. The problem is that the marketplace is standard deviation in your market and using technicalglobal. One must be as aware of international news and analysis, you can learn to better identify such areas andeconomic forces that might play or weigh on the price of learn to avoid being part of the herd. Educate yourself toprecious metals. Sure, gold is priced in strategically place your stops at aUS dollars – but shifting concerns in level that is less apt to get triggeredthe Euro zone or China are just as likely along with the masses. It takesto move prices dramatically and bringmarket volatility. 5 Solution: patience and practice, but if you wish to avoid being knocked out of a position prematurely you ought toDon’t forget to take into consideration consider improving the placementthe activities that can be happening Gold is a global commodity - of your stop orders. Computerswithin the investment realm. There keep an eye on the big picture. can help you see the bigger picture.are plenty of motivating factors for Discovering the regularities andgold price trends that might not make nuances in each market is difficult,headlines on the morning business broadcasts. and requires constant vigilance and study. Markets are dynamic, ever-changing, and adapting. You should be justAlgorithmic trading programs have been rumored to take as willing to consistently devote the time, effort, and energyinto consideration the typical risk perspective of smaller necessary to be a student of your market. Learn to steptraders and to use that in an effort to push prices into back and see the big picture for gold. 4
  5. 5. Mistake #6 - Trading with the herdIt is easy to get caught up in the game. No matter what gold investment youare participating in, there is a lot of adrenaline and emotion that goes with 6 Solution:trading. You should already have developed a trading plan, so sticking to itshould be easy no matter what the crowd is doing. Note that this is differentthan trend following. What matters here is avoiding hype. The old tradingadage, “Buy the rumor, sell the fact” speaks to the kind of over-inflated actionthat can crop up at times. Be wary of a stampede in one direction or another, Stick to your trading plan andand as long as your planned exits are not triggered, there is probably no your analysis.reason to run.Mistake #7 - Shooting for the moonOne of the biggest mistakes that can crop up in gold plenty of traders who sat too long on the plus side of atrading is getting caught up in the belief that there are trade, worrying that an early exit would cost them money.unimaginable riches just waiting to be tapped. There is no Find the reasonable exit that you formulated as part ofpromised glory land that will appear your plan and stick to it. Sure, therejust because you want it bad enough. are plenty of arguments that suggestThere is profit potential, and there is inflation-adjusted gold could be pricesa risk of loss, but lay everything onthe line searching for El Dorado and 7 Solution: in the thousands of dollars. However, if gold is headed in that direction, it willyou risk disappointment as well. have many pit stops along the way and Be realistic about your goals. plenty of profit taking opportunities.Try to take smaller nibbles rather Never forget the wisdom, “You can’tthan huge bites at profit. There are go broke taking a profit.” 5
  6. 6. Find more comprehensive Guides & Materials at: Investors can find trading guides, books, CDs, webinars, online courses and more. These tools are useful for traders of: • Equities • Futures • Foreign Exchange • Options • ETFs • And MoreThe material contained herein is being provided for educational purposes only. It neither is, nor should be construed, as an offer or solicitation of an offer to buy or sell securities.Free Investing Tools does not offer or provide any investment advice or opinion regarding any particular investment or investment strategy. Every individual investor is responsiblefor their own investment decisions, and such decisions should be based solely on an evaluation of their own particular financial circumstances, investment objectives, risktolerance and liquidity needs.This material may not be reproduced, transmitted or stored in whole or in part without the express written consent of Free Investing Tools.Copyright © 2011 Free Investing Tools. All rights reserved. 6