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5 Tips for Trading Gold (XAU/USD)

   

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As forex traders seek out stable investments that can hedge against inflation, market instability, and other geopolitical factors affecting currency prices, gold has grown in popularity over the past few years. Traders can use gold as a way to hedge against other investments, or as a safe haven that provides greater consistency over time and is more resistant to dramatic swings in valuation than many other currencies are.

XAU/USD is one of a number of gold pairings forex brokers now offer, making it easier than ever to incorporate gold as part of your forex trading strategy. If you’re eager to make better use of gold and capitalize on potential profit opportunities, here are five trading tips to keep in mind.

Day-Trade with the New York Close in Mind

Gold is a nearly 24-hour market, but peak liquidity is typically found during New York trading hours. Whether you should target trades during or after New York trading hours depends on your goals.


While trades during peak activity offer high liquidity and low volatility, making them good targets for safe-haven positions, off-hours trading can provide traders with the extra volatility needed to execute scalping strategies. At the same time, this extra volatility increases the relative risk of any trade.

Simplify Analysis by Targeting Previous Highs and Lows

Because XAU/USD tends to trade in a range, one of the easiest ways to evaluate trade opportunities is by identifying buy or sell opportunities within previous highs and lows for the trading pair. Traders can open a position on gold when it’s trending up, for example, and target a previous high as their sell price, or vice versa.

Since gold is a relatively stable asset, it’s likely to reach these previous highs or lows over time. Note that this isn’t a good strategy for day trading, since it can take time for these targets to be hit and range-bound strategies typically don’t offer quick profit opportunities like momentum strategies do. Still, it’s a relatively low-risk trade designed to generate some profit off reliable XAU/USD price movement.

Consider Geopolitical Implications on Currencies

When political or economic uncertainty creates concerns about currency prices, gold can be a stable safe haven that protects your liquid assets.

Gold tends to be strongly correlated to the U.S. dollar, as well as other stable currencies such as Japan’s yen, and opening a position with XAU/USD can be a reliable means of protecting your assets from unpredictable situations affecting other forex markets.

Use the Symmetrical Triangle for Analysis

The symmetrical triangle is a simple chart pattern that indicates a period of consolidation that may lead to a price breakout. Symmetrical triangles feature the convergence of two trend lines progressing at a similar slope, but in opposite directions. As consolidation takes place, price movement on the pairing grows tighter, creating a potential trading opportunity on a breakout for traders.

Most traders use the symmetrical triangle pattern along with other technical indicators, such as liquidity or relative strength index. When other indicators suggest a potential price breakout, the symmetrical triangle can add further confirmation and increase confidence in placing an order on XAU/USD.

A stop-loss order can be placed just below the descending trend line after the two trend lines converge, and sell orders can be issued in the event that the price of XAU/USD successfully breaks out.

Track Industrial, Commercial Demand for Gold

Increased market demand for gold can affect prices due to the fixed global supply of the material. Demand can come in multiple forms. Certain industries may increase their acquisitions of gold due to the material’s role in consumer projects. Both the medical and tech industries, for example, use gold in certain products and solutions.


Consumer demand for gold jewelry can also affect prices. Consider global demand in foreign markets where gold jewelry is considered both a luxury good and an investment asset. Increased production from gold mining companies can be a strong indicator of this increased demand.

Conclusion

While the price of gold is affected by different factors than that of typical forex currencies, many of the rules for evaluating forex currencies still apply.

Forex traders should consider XAU/USD as a reliable safe haven for their investment activity, as well as a potential profit source if they can effectively analyze gold’s price movements and develop a trading strategy to capitalize on this opportunity.

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Disclaimer:

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

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