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How to Perform Technical Analysis Using Gold Charts?

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How to Perform Technical Analysis Using Gold Charts

Technical Analysis Using Gold Charts

Some say that trading in gold, silver or any other commodities is similar to gambling. It is a fallacious statement contrived by ignorant people unaware of the art of investing successfully in this trade. Trading in commodities such as gold and silver is not like gambling. You do not put your money blindly on a security and just play on chances.

Successful trading requires deep analysis of the market forces and historical trends relating to the commodity. Various tools and techniques are available for the investors to understand the inner dynamics of commodities market. Investors use these tools to analyze past performance and trends. They can utilize the information obtained from the analysis to project future developments regarding the commodities.

Technical analysis is one of the invaluable tools for investors to make informed decision regarding investing in gold and other commodities. It allows them to forecast about future prices by looking at various charts and other indicators.

With the advancement of technology and proliferation of internet among the masses, technical analysis which in the past could only performed by professional experts can now be performed by ordinary individuals.

How Technical Analysis Helps Investors In Gold Trading?

Technical indicators are extremely effective in analyzing short-term price movement. Unlike fundamental analysis that analyzes earning potential of the commodity, technical analysis utilizes charts and graphs to indicate general price trend of the commodity. That is why it is of little value to determine long-term future trends and performance.

Technical analysis also provides information about effective entry and exit points relating to a investing in a particular commodity. Traders can view on a chart some basic trends or indicators that specify when to buy a commodity and when to sell them to obtain maximum return on investment.

Technical analysis makes use specific gold chart patterns and other statistical techniques to examine trends of gold prices. There are more than 50 types of technical indicators that shows the movement of the gold price – up, down, or sideways. However, beginners are advised to understand three most basic technical indicators first before advancing further on.

The three basic technical indicators include:

  • Support And Resistance
  • Moving Averages
  • Boolinger Bands

Support and Resistance

Support and Resistance

Support and resistance levels determine the best entry and exit point for investors. They represent areas of price congestion that indicate bullish or bearish trend in the market.

Support Level

Support level is the price level at which traders can expect to see buyers entering the market in sufficient numbers that results in rallying of the prices. For example, when gold prices falls to record lows, buyers will enter the market to purchase gold at lower prices. The buyers will gradually increase in numbers resulting in a gradual rally of the gold price. The price is unlikely to fall further and helps in creating a support level.

Resistance Level

Resistance level, on the other hand, is the price level at which sellers are expected to sell their holdings that results in decline of the prices. For example, when gold prices rises to record highs, sellers will enter the market to sell gold at higher prices. The sellers will gradually increase in numbers resulting in a gradual decline of the gold price. The price is unlikely to increase further and resists increase in the price levels.

Moving Average Line

moving-average

Moving averages indicates whether there will be a bearish, bullish, or nonexistent trend in the market. They also indicate the support and resistance price levels. Higher moving averages indicate support level prices and a bullish trend. Alternatively, a Lower moving average indicates resistance level prices and a bearish trend in the gold market.

Bollinger Bands

Bollinger Bands

Bollinger Bands is a technical analysis tool that was developed by John Bollinger in 1980. It indicates the level at which price movements might reverse in direction. Bollinger band consists of:

  • N period Moving Average
  • Upper Band
  • Lower Band

Bollinger Bands

In Bollinger Bands the “%b” is used to determine the high and low prices relative to previous trades. %b (pronounced “percent b”) indicates the position of the current price in relation to the historical high and low bands or prices of gold. %b is near one if it is near the upper band and near zero if it is near the lower band.

%b = (price − lowerBB) / (upperBB − lowerBB)

where upper band=2σ + Moving Average of price in last one or two decades

and lower band=2σ – Moving Average of price in last one or two decades

This help traders to follow the number one investment rule of “buy low and sell high”. If the %b is near lower band, then that is the best time to buy gold. However, if %b is near higher band, then that is the best time to sell gold.

Moreover, if the prices are above the band then it is likely the trend will experience a bullish trend in the near future. Contrarily if the current prices are below the band then it is likely the trend will experience a bearish trend in the near future.

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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