Technical analysis for Gold trading: charts and popular indicators
Precious metals, in particular gold, are attractive assets for online trading and investing in two types: medium-term and short-term. When trading gold, you do not even need to purchase the commodity itself: to carry out activities and make a return, you can use futures contracts.
Many people also buy the bars themselves when they decide to invest in gold, protecting their savings from inflation and currency fluctuations. Everyone knows that exchange rates are tied to the political situation in a particular country and the state of its economy. But the gold rate at all times remains quite high.
Fluctuations in gold prices depend on several factors and usually have a maximum amplitude of about 30%. In the arsenal of experienced traders, there are certain indicators of a Technical, Fundamental, and Sentiment nature that allow predicting the future dynamics of the value of precious metals. In previous articles, we have already considered the Fundamental factors that affect this asset and also given advice on trading precious metals, so today we will look at the Technical analysis of gold in the Forex market and the main aspects you should know.
Gold Technical analysis: graphical and indicator method
There are two main types of Technical analysis of gold: graphical and indicator. The graphical method is a technique based on identifying market trends and signs of price changes directly on the price chart. The graphical method is based on the rule that price patterns repeat.
Watching the price chart, traders may notice that before significant changes in the price dynamics, characteristic figures, or patterns, can be seen on the chart. These figures have received certain names, and their appearance on the chart should mean that, most likely, the price will continue to move in the same way as it most often moves after passing through such figures. You can read more about popular patterns in our article on Japanese candlesticks in trading.
On the other hand, indicator analysis is a method that uses special calculation methods. Indicators look like auxiliary charts that are calculated and drawn in addition to the price chart itself. They are set either based on average prices or based on changes in these prices. Next, we will dwell in more detail on both the analysis of charts and indicators.
How to conduct a Technical analysis of the gold price?
As for Technical analysis, first of all, it is necessary to see the broader perspective. Weekly or monthly candlesticks or bar charts are best suited for this. Positions are best opened in the direction of the trend, with deep stops. If you are playing against the market, then the stop should be much more aggressive. Outgoing news can cause turbulence in the trading markets, which Technical indicators cannot adequately predict, so you should refrain from trading on such days.
The instrument itself has a wide range of fluctuations. For three hourly candlesticks, gold can win back a slow monthly decline. It is very important to follow the developed trading strategy strictly. Situations when there are a couple of pips left before your stop, after which the price bounces, will occur with enviable frequency, testing the strength of the trader’s nerve resistance. For traders who prefer to work in the short term, 30-minute and 15-minute frames are best suited, as they will be convenient to navigate when calculating position entry points and potential profit.
Gold trading Technical indicators
Also, for trading gold, you can use all the same indicators as for working with currency pairs. The only thing to keep in mind is that the price of gold moves much faster than any other currency or stock.
For example, if the price of a currency can change by 5–6 points in one hour, then the price of gold can go a distance of 20–30 points at the same time. For this reason, it is not recommended to use indicators with lagging signals for metal trading. This includes conventional moving average lines, the classic stochastic, and other similar instruments, the readings of which may slightly lag behind the market movement. You can use these indicators only as auxiliary tools for assessing the general trend, but not for finding market entry points.
Modified stochastic and MACD
Modified versions of stochastic and MACD do not have such a big drawback as a delay. Therefore, you can efficiently use any of them. Also, for work, you can set Fibonacci levels on the chart — they will help you correctly set stop-loss and take-profit for each transaction.
Gold is a highly liquid asset that can rise sharply in price in a short period of time. In this regard, it is better to monitor the size of the brokerage commission. Doing this manually is extremely inconvenient, so it is recommended to use special spread indicators.
Overlay Charts indicator for trading gold
This tool is designed for trading based on the correlation of assets. The price of gold directly depends on the value of the US dollar and the currencies of other developed countries, as well as on the price of oil. If the price of the currency falls, then the value of gold rises as traders begin to invest in precious metals. But with oil, the opposite is true — with an increase in the price, gold also steadily rises. It is not very convenient to track the chart of gold and another trading instrument at the same time. This problem is solved by the Overlay Charts indicator.
Relative Strength Index (RSI) for gold trading
Using the RSI to scalp gold may not be the best option. Because this indicator rarely gives overbought and oversold signals. However, traders prefer to use RSI as a filtering analysis, combining it with other indicators.
Parabolic SAR for gold trading
This indicator can be used to scalp gold. Signals are obtained through the appearance of points above or below the price. Usually, the signal is confirmed if three dots appear from the price. The weakness of this indicator is that this indicator often redraws, so it is possible that after the dot appears, it will disappear again when the price reverses.
Forex gold Average Direction Index
ADX or Average Direction Index is an indicator to measure the strength of a trend. Using the ADX to scalp gold looks for entry when the trend is strong.
Price Action Candlestick Pattern for Gold Trading
This is a way to scalp gold without the use of indicators. Traders only study price patterns that often repeat their own history. The essence of this strategy is to look for pullbacks in a trend. Or look for trend reversals when the trend has gone too far.
Gold trading strategies based on Technical analysis
Gold trading is considered one of the most popular instruments for trading since this metal has always been in great demand. Working with gold is attractive because this asset is not characterized by sharp price fluctuations. The price of this precious metal is usually actively growing, so more and more traders prefer to invest their finances in it. Let’s consider several examples of trading this metal based on Technical analysis.
The pyramid principle of gold trading
When working intraday, it is wise to use the pyramidal method of gold trading when the position is gained in small fractions. In the course of such work, the chance of getting the most unprofitable deal is extremely small. Price will sooner or later reverse, even if the first few trades weren’t good enough. You can also exit with parts or one big deal. It is best to use moving averages or their derivatives as an entry/exit signal.
Breakout trading of gold
According to the highs of the candlesticks, a channel is built, the breakdown of which is a clear signal to open a position. A stop is immediately placed, which is on the opposite side of the channel and is built on the lows. As the price rises, the stop is pulled higher and higher until the price corrects enough to break it down. Then you should close or roll over the market. The trader regulates the proportions of the position himself, but he should be guided by the principle that the narrower the channel, the larger the deal should be. According to this principle, gold trading is more suitable for medium-term traders.
Counterbreakdown principle in gold trading
….
Continue reading:
