Home Market Research How Candlestick Patterns Work When Trading Gold

How Candlestick Patterns Work When Trading Gold

Candlestick Patterns

The candlestick pattern is a long and often used template for implementing many different types of trading strategies. Because the use of the candlestick pattern actually originated with gold traders, the pattern in the commodity have a relationship that is still able to be exploited though matter the market conditions of the current economy.

There have been books written on the trading strategies that the candlestick pattern can create for trader inside of the gold market. This article can only cover a few of the basics; however, every trader should understand these basics if he or she is going to trade gold and other precious commodities online effectively within the Forex market.

Trading Gold Online Using the Candlestick Pattern

The candlestick pattern is especially good for allowing traders to see overall trends in a short-term volatile market. In short, traders tend to lose the forest in the trees. The candlestick pattern allows a trader to see both at the same time.

Most people believe that the gold market does not have the same kind of volatility that other markets do. Perhaps the commodity itself is less prone to volatility, but the overall market is just as volatile as any other. People who are looking for shorter term profits within the Forex market by trading on gold mining stocks or other gold derivatives need to understand short-term trading strategy as well as gold as a hedge.

Candlestick pattern template such as the Kicker Signal, Hammer Signal and the Shooting Star Signal will allow a trader to make sense of short-term volatility by seeing an overall trend in the movement. This is a definite advantage to make money when others are highly confused, taking in “hot tips” and the latest CNBC news report that is always a step behind the movement of the commodity itself.

Gold futures and gold options can also be traded quite effectively using candlestick patterns, especially Japanese candlestick patterns. It behooves a trader to look into the basic Japanese candlestick patterns before committing him herself to the short-term Forex gold market.

For Example: A Doji Trading Pattern

A doji trading pattern occurs when the trading price of a commodity at the open of market is about the same as the closing price of that commodity on the same day. Of course, as any trader knows, the price of a volatile security can fluctuate wildly within the open and close of trading. This is an especially important concept to understand during trading in the Forex market, which is open 24 hours a day.

Understanding the pattern can tell you where the momentum for a certain upside or downside movement came from. You can then match that to news reports within the market for occurrences within the gold mining company that you are trading. Instead of being a step behind the news reports, you will be able to create a template of future patterns that you can then call upon down the road.

It is important to place your doji at a resistance area for best results. You will then be able to identify areas of support and when that support is being broken because of a significant change to the underlying stock that you are trading.

Zero In on the Movement That You Want

It is very important to zero in on the movement that you are looking for. A doji Chart is most effective when you are dealing in the time frame in which you are most comfortable. If your trading expertise is incredibly short term pockets, i.e. 15 minutes to an hour, then you should invest in a software package that allows you to drill down to those points within a doji chart. The same philosophy applies for longer-term trading periods – make sure that you are looking at the resistance and the support areas that are relevant to your volume and frequency of trading.

Understanding the Shortcomings of the Candlestick Pattern

Even with a drill down timestamp that is appropriately placed and a chart that is correctly implemented at a good resistance area, candlestick charts still have some weaknesses. A trader must keep up with the day-to-day news of his or her gold-mining trading company in order to stay ahead of announcements that may break any resistance points or support points. For this, it is good to have a reputable source of information.

It is also good to know the seasonal and managerial quirks of the companies that you trade. In short, just because you have implemented a candlestick chart does not mean that you are not responsible for understanding the very human nature of gold trading companies and other types of gold derivative trading opportunities on the Forex market. Stay abreast of all changes that may cause your candle stick to break, and you will know when to change your patterns effectively for the best results.


References –
1 – http://hitandruncandlesticks.com/blog/japanese-candlesticks/trade-gold-with-japanese-candlesticks-2
2 – http://www.swing-trade-stocks.com/doji-candlestick-pattern.html
3 – http://www.investing.com/commodities/gold-candlestick

How to Trade Gold Online

The Price of gold is constantly on the move. Take advantage of the daily price changes in gold with an online trading account. Some brokers offer bonuses of up to 30% on your first deposit (Terms and conditions apply). Open Gold Trading Account Here

The broker trading platform will also provide you with numerous charting tools and the ability to trade other commodities and currencies in addition to gold CFD’s. You might also want to begin trading with a demo account before attempting to risk any of your own money. That way you can practice trading with virtual money on the demo platform first.

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