For many years, gold has been referred to as a reliable store of value and one of the earliest currencies. In recent times, gold has been considered one of the most popular commodities to trade. Gold trading entails buying and selling gold on the commodity exchange via derivatives contracts like futures and options. The main objective is to profit from the price movements of gold as an underlying asset.
In this blog, we’ve handpicked and mentioned some of the best gold trading tips, especially for beginners. Let’s unfold them in the article.
5 Beginner Tips for Trading in Gold
Here are five beginner tips that can help traders ace trading gold.
1. Focus on Small Trades Initially
Traders who’re just starting out in the Multi Commodity Exchange (MCX) should not over-trade or use more leverage than they can handle.
As far as the size of gold positions is concerned, you should not risk more than a certain percentage of your trading capital. From a beginner’s perspective, you should start by taking small positions, i.e. minimum contract size for Gold or start with Gold Mini. Also, set your stop-losses accordingly.
Use the gold option chain to analyze the market condition and place trades in the derivatives market. This tip may seem boring initially, but it can actually save you from potential losses and allow you to book profits.
2. Watch US Dollar
There is an inverse relationship between the value of US dollars and gold’s international price. Simply put, when the US dollar strengthens, the price of gold falls, and vice versa.
Since gold is denominated in US dollars, whenever there is an increase in the value of dollars, gold gets expensive for traders with other currencies. Hence, its demand decreases, which has a downward impact on prices.
As a trader, you need to keep an eye on such movements.
3. Trade Based Upon Present Conditions
Gold prices are extensively affected by a number of factors, including supply and demand, geopolitical events, inflation expectations, US dollar dollar strength, and more.
Thus, before beginning your trade, you should determine how these events can affect gold prices. Make sure to actively react to changing conditions.
The gold market is dynamic. Hence, you need to be aware of the latest news and developments across the world that can potentially impact gold prices.
4. Track Price Changes
Like the weather, which has different seasons, such as spring and autumn, gold markets also follow seasonal patterns. Simply put, there are some specified times, like New Year when gold prices generally increase and then decrease during summer.
According to analysts, this pattern is associated with the seasonal change in demand for gold across the world. Newbie traders can quickly grasp this factor and make informed derivatives trades for gold as an underlying asset.
5. Use Technical Indicators
Technical indicators allow traders to analyze gold’s past price movements and chart patterns to predict gold future prices. You can use indicators like moving averages, Bollinger bands, MACD, RSI, and more to determine potential entry/exit points for gold trades.
Ensure that you use the technical indicators in conjunction with your fundamental analysis, risk management techniques, and trading strategy to understand the price direction and trends of gold. In this way, you’ll make informed trading decisions.
Conclusion
Gold trading is amongst the safest and most effective ways to build wealth. However, when it comes to trading gold in the derivatives market, the equation changes a little and requires traders to pay attention to global events. Based on in-depth research, trading strategies, and risk management tools, beginners can also ace trading gold in the Indian derivatives market.
