Day Trading Strategies for Gold Trading

Day Trading Strategies for Gold Trading

gold daily chart

Gold daily chart

Since time in memorial, gold has played an important role in the financial market. It has been synonymous with luxury and power. In the past, it used to make religious idols, honor monarchs and serve as currency. In the United States, the dollar was pegged to gold until 1971 when this peg was removed. To date, the Federal Reserve and other central banks around the world hold huge deposits of gold for emergency purposes. After the great depression, the Roosevelt administration fixed the price of gold at $35/ounce. This was removed by the Nixon administration in 1971 leading to a 2,200% gain in its price resting at $800 before going down to $260 in 1999. After this fall, gold began a bull run and is today trading at $1,136. These fluctuations are very important for traders who can make a lot of money in the process. In this article, I will explain a few strategies to help you trade gold spot prices.

Fundamental and intermarket factors

As a commodity, gold prices depend on a number of factors such as supply and demand. In addition, monetary and fiscal decisions play an important role in pricing gold. In a strong economy, there is increased confidence for investors to buy gold. As a result, the price keeps on going up. The better the returns in the bond and stocks market leads to higher returns in gold prices. Historically, a strong dollar leads to strong gold and vice versa. As a day trader, you need to have a holistic approach about the fundamentals so that you can know when to enter and exit a trade. Presently, the Federal Reserve is contemplating raising interest rates. As the year progresses, I expect that the price of gold will fall in anticipation of the tightening measures.


1 month chart of Gold and EURUSD

Technical strategies

For day traders, price movements are key to make sweet returns in gold trading. In many cases, gold will follow a certain trend. Therefore, it is your responsibility as a trader to find the trend and enter a position.

To identify a trend, trend analysis is very important. Luckily, there are tools (indicators) which can help you in this. For short term trades, you simply want to identify the support and resistance levels.

Trendlines also play a very significant role in confirming other technical indicators such as those generated by MACD and Relative Strength Index (RSI). In my experience, I have identified the best strategy as one where I wait for the trendline to be breached before I make my entry position. To create an upward trend, the best strategy is to connect a series of rising bottoms and finding a support opportunity. On the other hand, a downward trend is created by joining a series of highs.

Another technical strategy to use is that of moving averages because they are simple to use and easy to generate. The best buying position is when the shorter term, faster moving average passes above the slower one. Also, you can sell when the faster average crosses below the slower average in a trending market. To execute this strategy in the best way, you need to first understand the type of market, whether it is a trending market or a range bound market. Other trend analysus indicators you can use include: Bollinger bands, envelopes, and standard deviation.

Identifying a divergence is also very important. A good indicator to help you in this is the Relative Strength Index (RSI). Quite often, the RSI will hit highs and lows as gold price turns either down or upwards. To place a trade, you should always try to find a confirmation of the divergence. Confirmation leads to an increase in confidence. With increased confidence, the result will be a better trade.

The Bottom-line

To make sweet returns in trading gold, you need to understand the key factors that lead to price movements. In addition, having a good understanding about the economy will help you make confident results. After understanding the macro conditions, you should now focus on technical analysis. By understanding the trend, and knowing how to identify the divergence, you will be at a good position to make good entry and exit decisions.