A Precious Metals Trading Strategy

Gold prices recently reached almost $1,400 per troy ounce before making a retracement. Gold market is in an unprecedented uptrend for the last many years. Many analysts are predicting that gold prices can reach as high as $2,500 in the next six to twelve months. Nobody knows! Nobody was expecting the gold prices to make a retracement. But trends never move in straight lines. Prices move up or down, they consolidate and make a retracement and then again start moving up or down. Silver is another precious metal that is expected to skyrocket in the next few years.

Let's illustrate this precious metals trading strategy with an example. A gold futures contract consists of 100 ounces. Now, the margin requirements can vary from one broker to another but it is generally around $5,000. This means you can control 100 ounces of gold with $5,000. Each point the gold futures contract moves up or down, you make $10 or lose $10. Suppose, you bought the gold futures contract and it moved up by 50 points. You make $500 less the commission and other fees).

Now, suppose you buy one gold contract and that contract moves 50 points by the end of the week. You sell it at that and make a nice $500! This is your first trade in a series of four trades that you are about to make in the gold market.

Now, markets move up and down. When the market moves against you, you don't need to panic if you have managed your risk. The market moves down. But you are confident that it will again move up. This it does after a few days. You again enter the market with two gold futures contracts. Within a few days, the market moves up by 50 points. You decide to sell your two contracts and realize your profit of $1,000. This is your second trade in a series of four trades.

Gold prices always rise when there is uncertainty in the global economy or politics. In times of uncertainty, wealthy investors tend to run towards gold. Suppose, rumors are flying high about some event in the world and this is increasing the uncertainty in the financial markets. Gold prices are on the rise again. You now buy three gold contracts. By the end of the week, each contract is up by 100 points. You make a cool $3,000 when you sell the three contracts. This way, you complete your third trade in a series of four trades.

Suddenly gold prices drop like that did a few days back. You are shocked. But don't worry; this is the way markets work. You wait for a few days and the prices again start climbing. You buy four gold futures contracts this time. You wait a few days before the contracts each move 50 points. You sell all the four contracts making a nice $2,000. This was the fourth trade in a series of four trades. Your net profit is $500+$1,000+$3,000+$2,000=$6,500! Not bad! Now, you will start all over again with a new series of four trades repeating what you did above.

This is a very simple gold trading strategy that depends on pyramiding your position with a series of four trades and removing all the profit from your account at the end of these four trades. With practice, you will find this gold trading strategy very simple and easy to implement.