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Looking for a gold scalping strategy to expand your portfolio into other markets? Well, here it is! All you need to know to start putting together a plan and strategy for scalping gold.
In this article we will go over the following points regarding trading gold:
- Most Common Gold Scalping Strategies
- 4 Indicators for Scalping Gold
- Questions and Answers about Trading Gold
But first let’s tackle the number one question on every body’s mind...
Is gold good for scalping?
Many people are wondering if gold is good for scalping as gold may look to be soaring in value, and a lot of people are looking for ways to capitalize on its growth. You could stand to make a lot of money trading gold, but it is not without risk. You still need to apply a strategy and know the tips and tricks to a good gold scalping strategy in order to have better chances at succeeding.
In order for gold scalping to be profitable, there must be adequate volatility throughout a trading session. When the financial markets are chaotic and geopolitical unrest is high, the price of this precious metal will frequently fluctuate dramatically.
Now let’s dive into the gold scalping strategies most suggested for trading gold:
Most Common Gold Scalping Strategies
There are three gold scalping strategies that are referred to most often. Two are fundamental and the third technical.
Differences Between Fundamental and Technical Strategies:
There are two main types of trading strategies: fundamental and technical. Fundamental trading strategies are based on the value of a commodity, and how it might be affected by macroeconomic factors like the economy and interest rates. Technical trading strategies are based on charts and trends in the market, rather than external factors.
Fundamental traders tend to focus on things like news, events, GDP growth and unemployment, while technical traders try to predict price movements based on past patterns and their decisions are influenced by price movements within the market.
Gold Scalping Strategy #1: Follow Seasonal Patterns
Gold is a commodity that follows seasonal trends. Each year, gold tends to rally during a specific time period. This is an advantage for traders who have done their homework to learn when the price is likely going to increase.
You can use this knowledge to your advantage, If you're a scalper. This could give you the opportunity to pick a direction and focus on one side of the market.
This is a great fundamental strategy to follow, but do keep your eyes on the price. At times gold can be volatile and if you don’t exit at the right time you could end up losing.
Gold Scalping Strategy #2: Use US Treasury Rates
Using US Treasury rates could be a great alternate fundamental technique for you. Since most traders will sell their assets to buy treasury bonds, rising US Treasury rates typically cause gold prices to fall.
Because of this, gold prices tend to drop whenever Treasury rates rise. And, vice versa, the price of gold usually rises whenever Treasury rates fall. Keeping an eye on the US Treasury rates will help guide your entry and exit points when trading gold.
Gold Scalping Strategy #3: Apply the Moving Average Crossover
If you want to trade gold using technical analysis, make sure your strategy is aligned with the circumstances of the market at the time. Range bound strategies perform much better in low-volatility environments, but momentum strategies typically perform well in trending markets.
A great technical trading strategy for trading gold is the moving average crossover as it is fairly simple to understand and follow.
The average closing prices over any given period, is what we refer to as a Simple Moving Average (MA). Traders use moving average indicators over different time frames to help determine the price trend.
Now the way the moving average crossover works is that when a short-term MA crosses a long-term MA, it's an indication that a long position on the gold trade might be a good idea. A potential short position is signalled whenever the shorter-term MA crosses below the longer-term MA.
4 Indicators for Scalping Gold
We’ve talked about the Moving Average Crossover as a popular indicator for trading gold. But there are more indicators one can try out. Let’s have a look…
Gold Scalping Indicator #1: EMA Indicator
An investment's price over time (such as the price of a stock or commodity) is tracked by the exponential moving average (EMA), which is a technical chart indicator. The EMA is a kind of weighted moving average (WMA) that lends more weight or relevance to recent price data.
The EMA indicator tracks a security's price through time with a focus on recently recorded prices and is used by traders as a gold price predictor, a technical chart measure for stock trading, and a Forex indicator.
Gold Scalping Indicator #2: Simple Moving Average (SMA) Indicator
The simple moving average (SMA) indicator is a popular technical analysis tool that allows traders to spot trends and patterns. The SMA indicator is preferred by both institutional and retail traders because it enables them to easily measure the performance of assets over specified periods of time. Simply said, this indicator informs traders whether the price of their asset is rising or falling, enabling them to spot a trend or pattern.
Gold Scalping Indicator #3: Gamma Scalping Indicator
Gamma scalping, also known as gamma hedging, is more often used by experienced options traders to balance out the time decay component of an option position while modifying the delta of a long option premium.
Gamma scalping is more suited to experienced traders because it requires entering and exiting trades quickly through the underlying market. This will regulate the time decay component of the options position while adjusting the delta of a long option premium.
Gold Scalping Indicator #4: Stochastic Oscillator Indicator
The stochastic oscillator indicator is a common tool used to identify overbought and oversold conditions in the market. The indicator compares the closing price of an asset with a range of its prices over a given time period. This approach is similar to the EMA indicator, which also determines momentum based on the security's price history.
Trading Gold FAQs:
As per usual we want to make sure all your questions are answered, so we’ve collected the most common questions asked about trading gold and gold scalping strategies to make sure you have everything you need to make informed trading decisions.
What is the best indicator for scalping gold?
If you're looking for the best indicator for scalping gold, look no further than the EMA indicator. This tool reacts more swiftly to new price movements than to old ones. It is a technical indicator and is used by traders to find buy and sell signals that result from historical average crossovers and divergences.
Which strategy is best for gold trading?
What is the best timeframe to trade gold?
If you're looking to invest in gold, you probably want to know what time frame is ideal for buying. The price of gold typically seems to trend upwards more than usual in the months of January, February, September, November, and December. Therefore, these months are favorable for investing in gold long-term according to historical data. Likewise historical data shows that the price of gold seems to drop between the months of March and October. With that said, markets change and there are no certainties when trading. Its best that you do your homework and back test your ideas.
What lot size should I use for gold?
When trading gold, you have to make sure that you're using the right lot size.
Gold contracts must be at least 0.10 lots in size to be traded. This means that if you want to trade a full 100 ounces of gold, it would require 1 standard lot. With that in mind, the easiest way to determine your optimal gold lot size is by multiplying your desired trade amount by 10 and then dividing that result by 100. This will give you the number of ounces of gold that can be traded per contract.
For example: If you want to trade 1 standard lot (100 ounces) with a price of $1,250 per ounce, then your optimal lot size would be 12.5 ounces (because 1/100 = 0.01).
What triggers gold price?
Gold is considered as a safe haven against inflation. This means that gold's price tends to rises when inflation or inflationary predictions stimulate investors' desire to invest in this precious metal; on the other hand, when inflation or inflationary expectations decline, gold prices can fall. Again, its best to do your home work here so you can identify the patterns and the probabilistic outcome.
These 8 elements impact gold's price:
- Inflation
- Exchange rate changes
- Supply and demand
- Demand for investment
- Industrial demand
- Global jewellery/fashion trends
- Geopolitical unrest
- Instability in financial markets
How to Start Trading Gold
So we’ve learned about the three most common gold scalping strategies and the four most popular indicators used for trading gold. Now what?
The next step is to choose a reliable broker to start trading this precious commodity. Check out our Broker Reviews page to see which broker is right for you. And remember to try out our free trading signals where you will receive regular market updates and potential trading opportunities.
Lastly, remember to trade safely and manage your risk, as well as your trading emotions. Becoming a master of your own trading psychology is a big part of becoming a better trader in any market.
