Mistake #1 - Trading without a plan
Before you participate in any kind of investment, you should have a master plan that is prepared and understood before
entering into any trade. Take the time to perform due diligence having a coherent outline will help you avoid many of the
common pitfalls of trading.
Every trading plan must include the following points:
Suitable Trading Medium - Different gold markets have out when the trade moves in your favor. Having multiple
different advantages and disadvantages. Know them both scale out points can work to cover costs, preserve gains,
and make sure you select an investment that suits your and still leave something on the table for more potential
comfort zone for risk exposure. Gold stocks don’t always profits.
mirror the physical gold market and
vice versa. Be a student of your Targeted profit level - Include a
investment. Study it, read up on it, price point to close the investment out
and get comfortable with it. Make
sure you enter that market with a 1 Solution: for a profit. This is important to avoid
falling into a trap where gains are
sufficient understanding of how it reversed for sitting on a trade too long.
Have a plan - think through When you finish your plan, ask
Defined entry level - Have clear your gold investment. yourself: Does the plan make sense?
technical or fundamental reasoning Does the trade make sense? Does the
for your buy or sell price. Wait for it trade fit your plan? For some readers
and avoid jumping in just to be part of the melee. that may seem frivolous, but you would be surprised as
to how many trades, even those taken by professional
Clear risk management structure - Prepare precise traders, have not been thought out in advance. Right now
exit points for when the market moves against you. Know your head is clear, and you can approach the market with a
what your risk tolerance level is, and be prepared to pull neutral attitude. This is in contrast to hemming and hawing
the plug if the trade doesn’t go your way. Smart money about what to do once the market moves after the position
should also have specific exit points where you can scale has been established.
Mistake #2 - Getting emotional about gold
Stick to your trading plan. Having those barriers and limits will help you keep
your emotions in check.
The reason many emerging traders fail to consistently earn profits is because
of their perceptions of money. Find methods to desensitize yourself to the
emotional connection to money. Consider trading smaller size increments.
Check your heart at the door.
Trading in smaller quantities can help minimize both the losses and the
emotional distress that often comes with losing larger amounts of capital. As
your experience grows, then you can consider upping the ante.
Fear and greed are common where money is involved. Once your plan – after all, that’s why you have one. Running
you have a position on and real funds at stake, these two “what if” scenarios in advance will assist and greatly
will make an appearance. The market may move against improve your understanding in devising an appropriate
you swiftly. If you had planned to risk only a certain amount, response to whatever outcome you face. Following through
take the loss. Of course the market could move in your is the key. Such techniques will help you in keeping your
favor, so prepare what steps to take to protect your profit. emotions in check by being mechanical. Never forget that
Have a goal and realize it. Use the tools the market might your emotions will surprise you as the market moves in
provide to assist you in protecting your position to let your your favor, or against your position. Successful traders
profit grow. Above all, don’t hem and haw as to what to do. understand this and prepare in advance rather than wing it.
The market is unforgiving and takes no prisoners. Execute
Mistake #3 - Over-thinking things
Whether you are buying and selling physical bullion or action. Have a firm exit plan with stop loss orders, if
trading in gold derivatives, it is easy to get caught up in possible. They can take the decision making out of your
the dazzle from the internet and TV. There is no shortage hands when it’s time to realize a loss and move on. Have
of people willing to sell you their a reasonable profit objective and exit
outlooks, analysis and systems. your investment when it is attained.
The best suggestion is to find what It doesn’t happen often enough,
works for you. Fundamental analysis
can happen in a keystroke. Global
3 Solution: but getting out too early can be an
emotional experience - sometimes
economic reports are at everyone’s worse than losing.
fingertips. The techniques available Find streamlined analysis or
for technical analysis have expanded a trading system for gold that Monitoring a position can become a
with the use of computers. Be aware works for you. full time job. The market can do one
of the outlets for analysis, but don’t of three things: go up, go down, or
get bogged down by them. Once you sit there. You should have a plan of
find something that works for you, action in place to react to all three
stick with it and refine it. There is no holy grail. Become and be willing and able to follow through on that plan. That
comfortable with using an approach that has a proven will prevent you from falling victim to paralysis by analysis,
record of success for you and don’t agonize. or hemming and hawing. Inaction can result in losing more
than you planned and prepared for, or worse – losing
Once you have actually taken a position or have an profits. There is nothing worse than watching a winning
investment in hand, prepare to react and take appropriate trade turn into a loser.
Mistake #4 - Getting tunnel vision for your bias
Most investors won’t acknowledge that an asset could turn make in advance. Gold bugs are not immune to this kind of
against them. They invest assuming they’ll be successful, starry-eyed conclusion.
refusing to look in the rearview mirror. It’s also common
for emerging traders to use a calculator to predict how Gold has a particular allure and luster that spans centuries
much they’ll make and how they’ll spend the unrealized and it is easy to get caught with gold fever. The problem is,
profits! Whoa! It’s dangerous to anticipate how much you’ll it hasn’t been that long since gold was at record low prices.
The macro picture should never be ignored. If it is, there profits can be an art form. Markets are not one directional,
is a chance to get caught in a bull or bear trap. Having and within every long term trend there are intermediate and
an entrenched bias in any market or shorter term trends. Identifying and
with any asset is dangerous and risky. studying these shorter term trends
Be willing to adapt as new information will serve to assist in choosing a
becomes available and mark that new
data against your investment plan.
4 Solution: more precise entry to, or exit from,
As Kenny Rogers famously said, “Know Remember that gold prices There are numerous ways to lock
when to hold ‘em, know when to fold can move up or down. in a profit, but none better than
‘em, know when to walk away, know offsetting the position. Once you’ve
when to run.” Any gold trader worth his reached your profitable objective
salt will advise you that it’s a good idea to become familiar set forth in your trading plan, unwind the trade - that’s it,
with that notion. It’ll help you as you discover that taking you’ve won! Congratulations!
Mistake #5 - Thinking local instead of global
It is natural to look to the things you are familiar with when levels where sizable stops are likely housed. Whether true
you are doing your analysis. For some investors, this means or not it, in some markets there are indeed areas where
reading domestic news and weighing that within their price the likelihood of stop orders increases. By knowing the
forecasts for gold. The problem is that the marketplace is standard deviation in your market and using technical
global. One must be as aware of international news and analysis, you can learn to better identify such areas and
economic forces that might play or weigh on the price of learn to avoid being part of the herd. Educate yourself to
precious metals. Sure, gold is priced in strategically place your stops at a
US dollars – but shifting concerns in level that is less apt to get triggered
the Euro zone or China are just as likely along with the masses. It takes
to move prices dramatically and bring
market volatility. 5 Solution: patience and practice, but if you
wish to avoid being knocked out of
a position prematurely you ought to
Don’t forget to take into consideration consider improving the placement
the activities that can be happening Gold is a global commodity - of your stop orders. Computers
within the investment realm. There keep an eye on the big picture. can help you see the bigger picture.
are plenty of motivating factors for Discovering the regularities and
gold price trends that might not make nuances in each market is difficult,
headlines on the morning business broadcasts. and requires constant vigilance and study. Markets are
dynamic, ever-changing, and adapting. You should be just
Algorithmic trading programs have been rumored to take as willing to consistently devote the time, effort, and energy
into consideration the typical risk perspective of smaller necessary to be a student of your market. Learn to step
traders and to use that in an effort to push prices into back and see the big picture for gold.
Mistake #6 - Trading with the herd
It is easy to get caught up in the game. No matter what gold investment you
are participating in, there is a lot of adrenaline and emotion that goes with
trading. You should already have developed a trading plan, so sticking to it
should be easy no matter what the crowd is doing. Note that this is different
than trend following. What matters here is avoiding hype. The old trading
adage, “Buy the rumor, sell the fact” speaks to the kind of over-inflated action
that can crop up at times. Be wary of a stampede in one direction or another, Stick to your trading plan and
and as long as your planned exits are not triggered, there is probably no your analysis.
reason to run.
Mistake #7 - Shooting for the moon
One of the biggest mistakes that can crop up in gold plenty of traders who sat too long on the plus side of a
trading is getting caught up in the belief that there are trade, worrying that an early exit would cost them money.
unimaginable riches just waiting to be tapped. There is no Find the reasonable exit that you formulated as part of
promised glory land that will appear your plan and stick to it. Sure, there
just because you want it bad enough. are plenty of arguments that suggest
There is profit potential, and there is inflation-adjusted gold could be prices
a risk of loss, but lay everything on
the line searching for El Dorado and 7 Solution: in the thousands of dollars. However, if
gold is headed in that direction, it will
you risk disappointment as well. have many pit stops along the way and
Be realistic about your goals. plenty of profit taking opportunities.
Try to take smaller nibbles rather Never forget the wisdom, “You can’t
than huge bites at profit. There are go broke taking a profit.”
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