In the world of foreign exchange markets, gold trading is one of the popular methods to invest and make profits. However, to carry out effective gold trading requires more than just deep knowledge of the market. It is also necessary to apply appropriate Forex scalping strategies. Let’s review with Forex Trading the most effective gold trading strategy
Advantages and disadvantages of gold trading strategy
Gold trading is the buying and selling of gold for financial purposes. This includes buying and selling physical gold, gold ETFs, futures contracts, or contracts for difference (CFD). Here are the pros and cons of Forex gold scalping:
Advantage
- Gold never drops in price because it is a stable unit of value and is always popular in the manufacturing sector.
- In the market, the price of XAU often increases over a long period of time. Partly due to the effects of inflation. When money loses value, the value of gold increases relative to money.
- Predicting the trend of the XAUUSD currency pair is quite easy based on fundamental analysis. When markets are stagnant and the economy is struggling, inflation is high and world GDP is declining, the value of XAUUSD usually increases.
Defect
- In the short term, XAUUSD has fairly low volatility. Not suitable for scalping or day trading strategies. Minute and daily price fluctuations measured in pips do not have the same magnitude and speed as other currency pairs.
- To trade XAUUSD, it is necessary to accept higher risks and increase Forex scalping volume by increasing leverage. This is a result of the market’s low volatility.
- Profits from long-term investments in XAUUSD usually have a relatively low rate of return.
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Top 3 most effective gold trading strategies
Gold is one of the most popular trading assets in the Forex market, attracting investors with its safety and high profit potential. However, to be successful in gold trading, you need a strategy that suits your style and risk appetite. Here are the 3 most effective gold trading strategy:
Scalping strategy
The scalping strategy is a short-term trading strategy. Where buy and sell orders are opened and closed in a very short time, often in just a few minutes.
Advantage:
- Suitable for traders who want to make quick profits.
- Take advantage of even the smallest fluctuations in the market.
Defect:
- High skill required.
- Huge risk due to Forex scalping spreads and fees.
How to do it: Use technical indicators to determine buy and sell points. However, you must clearly understand what indicators like Moving Averages, RSI, Stochastic, and what is MFI.
Swing trading
Swing trading focuses on profiting from large market movements, usually lasting from a few days to a few weeks.
Advantage:
- Suitable for traders with more flexible time.
- Take advantage of long-term market trends.
Defect:
- Requires patience and mental control.
- There is a big risk if you cannot determine the entry and exit points from the market.
How to do it: Use tools like Fibonacci retracements, trendlines, and candlestick patterns to identify market entry and exit points.
Intraday trading
Intraday trading is the opening and closing of orders within the same trading day.
Advantage:
- Allows to make quick profits in a short time.
- Minimize risks related to space and time factors.
Defect:
- Requires high concentration.
- Great risk due to market factors and price fluctuations within a trading day.
How to do it: Use methods like breakout trading, range trading, and pivot points to determine buy and sell points for the day.
How to implement gold trading strategies
Below are detailed instructions on how to implement these gold trading strategy
Gold trading strategy with futures CFDs
CFD stands for contract for difference, a popular financial instrument in the foreign exchange market. For the XAUUSD example, an investor can buy the contract at a low price and sell it at a higher price. Or vice versa to profit from the price difference. CFDs are often exchanged through Forex brokers.
Trading gold CFDs in the Forex market is an effective way to make profits for traders who do not have large capital. But have basic analytical skills and a willingness to engage in active trading. However, it should be remembered that this is a complex instrument and the risk of losing money is high when trading CFDs.
To trade CFDs with XAUUSD, you can follow these instructions:
- Choose a broker and open a trading account, then proceed to verify your account.
- Fund your trading account with the required minimum amount. You can start with a cent retail investor account if your broker allows it.
- Learn and evaluate the trading conditions related to XAUUSD. Including leverage, minimum trading volume, and contract size.
- Analyze charts and participate in trades to make profits.
Scalping strategy for trading gold options
Binary options trading suggests you guess the price of an asset at the time the option expires. May be higher or lower than the opening price. When your prediction is correct, you can receive a profit from 50% to 90% of the value of the option. However, if your prediction is wrong, you will lose all your invested capital. Binary options are an easy approach to start trading, especially for newbies.
To trade gold options scalping strategy, you need to follow these instructions:
- Choose a broker that specializes in binary options, register, and complete the verification process.
- Then, perform fundamental and technical analysis on gold options in different time frames.
- Finally, open a binary option for the XAUUSD currency pair, determine the expiration date, the amount for the option, and predict whether the price will be higher or lower.
How to trade gold EFT funds in Forex scalping
ETF is a type of investment fund that changes its portfolio, engages in investment activities with specific goals, and owns freely circulating shares. For example, if you invest in an ETF that tracks top companies, you are also putting money into those companies by purchasing shares of the fund.
Similarly, with gold, there are ETFs that invest in gold. From physical metals to futures contracts. When you buy shares of these funds, you are investing in the gold market. Although the price of gold in ETFs is not exactly the same as the price of actual gold, they often tend to move about the same.
To invest in ETFs, you need:
- Choose a broker that has access to the foreign exchange market, where you can trade shares of ETFs.
- Please carefully study the terms and conditions of trading. Including how to buy and sell, brokerage fees, and other factors such as the minimum amount to invest.
- You can then buy shares of the ETF and start trading.
gold trading strategy with stocks
Another approach is to invest in gold. Derivative products related to gold are investments in stocks of gold-producing companies. The idea of this method is that if the price of gold increases, the profits of gold mining companies will also increase. At that time, the stock prices of these companies will also increase due to profit growth.
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Forex scalping strategy for gold and examples
In daily chart analysis, in August 2020, XAUUSD’s price reached its highest level amid the pandemic. However, with the number of coronavirus cases decreasing and information about vaccines developing. Investors have started withdrawing money from safe-haven assets, including gold. The daily chart shows a clear long-term downtrend, along with the formation of a horizontal price channel.
In May-June, prices moved sideways and stabilized. And now, after a similar move, the price broke down to the lower border of the price channel, moved up, and then returned from the border of the price channel. This shows that the market tends to continue to go down.
The Forex scalping strategy has several variations:
- Open a short position on the daily chart, placing the take profit near the support level. The time to hold this position is about 7-10 days.
- Switch to the H1 chart to identify the start of the downtrend. Then, enter a trade for a few hours and close the order before the overnight fee is charged.
With short positions opened on March 29, 2021, there was no major movement in the news. In the following week, there is no information that can strongly affect the daily XAU price on the chart. So, there is a high likelihood that the daily downtrend will continue towards support, although there could be localized fluctuations in both directions during the day.
Conclude:
In a dynamic market like Forex, applying an effective gold trading strategy is extremely important to ensure success and protect investment capital. By combining fundamental and technical analysis, along with monitoring support, resistance, and chart fluctuations that Forex Trading mentioned above; you can build a strategy that is in-depth and flexible. Good luck.
Frequently asked questions
How much money is needed to trade gold?
The amount of money you need to trade gold varies depending on the method you choose. In forex, you can start with a relatively small capital, sometimes only about 100 USD. For gold futures contracts, margin requirements can range from a few thousand to tens of thousands of dollars. Depends on the contract size.
Why is gold trading risky?
Gold trading carries inherent risks due to market fluctuations and price fluctuations. Factors such as geopolitical tensions, economic events, and changes. Additionally, leverage in some forms of gold trading can magnify both profits and losses, making it a risky endeavor.
Is it possible to trade gold daily?
Yes, you can trade gold on a daily basis if you choose a short-term Forex scalping strategy. Day trading and scalping involve opening and closing positions within the same trading day, taking advantage of intraday price movements.
