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Fit 7 mistakes_gold_traders_make

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Fit 7 mistakes_gold_traders_make

  1. 1. 7 Mistakes Every Gold Trader Must Avoid
  2. 2. 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. works. 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 2 Solution: 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. 2
  3. 3. 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. 3
  4. 4. 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, a position. 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. 4
  5. 5. 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 6 Solution: 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.” 5
  6. 6. Find more comprehensive Guides & Materials at: FreeInvestingtools.com Investors can find trading guides, books, CDs, webinars, online courses and more. These tools are useful for traders of: • Equities • Futures • Foreign Exchange • Options • ETFs • And More The material contained herein is being provided for educational purposes only. It neither is, nor should be construed, as an offer or solicitation of an offer to buy or sell securities. Free Investing Tools does not offer or provide any investment advice or opinion regarding any particular investment or investment strategy. Every individual investor is responsible for their own investment decisions, and such decisions should be based solely on an evaluation of their own particular financial circumstances, investment objectives, risk tolerance and liquidity needs. This material may not be reproduced, transmitted or stored in whole or in part without the express written consent of Free Investing Tools. Copyright © 2011 Free Investing Tools. All rights reserved. 6

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