Trading of any kind is full of highs and lows, and gold trading is no different. It is a complicated venture that requires research, attention to detail, and a good risk appetite.
Whether you’re an expert trader with decades of experience or you’re new at this gold trading thing, there’s every chance that you’ll make some common mistakes.
This article takes you through several mistakes in gold trading that you should avoid in your trading journey.
A Summary On What Gold Trading Is
In a nutshell, gold trading involves speculating on the price of gold within the gold market and profiting off its changes. Trading transactions occur through different routes such as CFDs (contract for difference), ETFs (exchange-traded funds), stock trading, futures, or options.
The goal of every gold trader is profits, but out of ignorance, some traders make mistakes that cause losses. Some might have happened due to a personal fault or forces beyond your control.
You may not be able to avoid them all, but you can avert the ones that depend on you. So what are these mistakes, and how can you prevent them?
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Not Tracking your Profit and Loss
Tracking your actions and inactions is an integral part of gold trading and should not be overlooked. Unfortunately, novice gold traders usually make the mistake of failing to keep track of their trading movements.
When losses or profits occur, they may be unable to remember why they made that trade and can’t figure out the cause of its failure or success. Failure to record your trading outcomes will have you making the same trading mistakes repeatedly.
What should you do instead? Record your trades, their rationale, and their outcomes in a journal. Over time, you’ll be able to analyze your profit and losses and the trades that made those transactions.
You can then make informed choices on how to replicate profit-making moves. You’ll no longer find yourself treasuring those pockets of profits while ignoring huge losses.
|21st May 2018||27.57||500|
|24th May 2018||27.8||0.23||0.83%||$115.00|
|1st June 2018||27.34||-0.23||-0.83%||-$115.00|
|8th June 2018||28.87||1.30||4.72%||$650.00|
|12th June 2018||30.1||2.53||9.18%||$1265.00|
|28th June 2018||29.74||2.17||7.87%||$1085.00|
|5th July 2018||29.49||1.92||6.96%||$960.00|
|19th July 2018||29.33||1-76||6.38%||$880.00|
|26th July 2018||29.66||2.09||7.58%||$1045.00|
The fear of missing out, otherwise known as FOMO, and the fear of loss plagues every gold trader out there. But you shouldn’t give in to public hysteria and make a hasty trade that you might regret.
Making profits from a gold trade requires understanding price trends and market information. To ensure you make profits, base your entry and exit decisions on your understanding of concrete analysis and not emotions.
For instance, if you entered a trade at $50 and notice an unusual price drop, do not panic and sell. Similarly, if the price begins an upward climb, do not give in to feeling left out and buy-in, hoping for a continuous rise.
Instead, settle down and confirm through your trading analysis and market news if this is a sustained rise and if you should take advantage of it. You’ll often find that you made a good call by not rushing to sell or buy.
Trading Without a Solid Plan
Gold trading for profit is a game of deliberate and well-thought-out strategies. If you go into it without a plan, you’re setting yourself and your portfolio up for losses.
Some traders might feel lucky and go in with an unplanned amount, usually higher than usual. They momentarily forget that the market won’t suddenly perform in their favor because they feel it should.
Instead of jumping in and out of trades without a strategy, research what moves to make. Then, spend time with market news and analysis that suits your chosen timeframe.
Your track record will show that you’re much better off with a solid strategy than without it.
Image Source: DailyFX
Setting Unrealistic Goals and Expectations
What drew you to gold trading? Did you expect to swim in money after your first trade? Were you promised a life of luxury when introduced to trading gold?
Riding on unrealistic expectations and promises will set you up for making losses. Gold trading isn’t a get-rich-quick scheme. A good look at the trajectory of gold prices over the years will prove why.
Of course, market forces can sometimes give you a solid profit, but that seldom happens. This doesn’t mean you shouldn’t dream big or aim for large profits. It simply means that you should study your charts and make your trades accordingly.
When you set practical trading goals based on factual information, you prevent significant hits to your portfolio. It also helps you stay the course and prevent emotional decisions, especially when there’s mass hysteria.
Not Sticking to Your Trading Timeline
One of the cornerstones of successfully trading gold is knowing your trading timeline (long or short) and sticking to it. Trading outside your planned timeline puts you at risk of making decisions with unfamiliar information.
Long-term traders trade for the long haul without getting involved in day trading. Short-term traders trade for a briefer time with a target for short-term profits. So if you’re a long-term trader, it’s ill-advised to start making short-term trades suddenly.
Because of their different timelines, short-term and long-term traders use different trading strategies. If you’d like to mix and match your timelines, ensure you prepare and have ample information.
Starting Big To Test the Waters
Gold trading is not a feel-good betting game, and traders should avoid testing the waters with money they can’t afford to lose. Unfortunately, many novice traders make the mistake of starting their gold trading journey with large amounts.
Starting big is not ideal because novices do not yet have enough experience to trade at high volumes. As a result, you’re likely to make the wrong decisions and incur losses.
If you lose all that money, you may not have the range and understanding to shoulder the loss. So instead, trade with smaller amounts that you’re ok with losing. As you grow in knowledge and experience, gradually increase the quantity.
Furthermore, avoid putting all your money into gold trading. It’s generally ill-advised to put all your investments or savings into one type of trade or investment. Instead, financial advisors suggest setting aside 10% to 20% of your income for investments.
Financial decisions are delicate ones, including when it comes to trading gold. Therefore, traders should take great care when making trading decisions.
Remember that you cannot profitably trade on what you don’t know. Hence, it’s far profitable to stay on top of information and track your trades with a trading journal.