Rebel Traders - Stock Market and Economic Analysis

If you have been following my market videos then you will know my recommendations for Gold (ETF symbol GLD).

Gold has been running upwards last week on growing fears of economic conditions worsening as well as a ‘safety trade’. In other words, some people have been buying up gold as they feel it is the only safe place to put their capital.

Irrespective of the reasons for the price advance in gold, one must still practice good trade management if you are already in GLD, or are considering getting into gold.

GLD is approaching a significant resistance level ($100). That would be a good place to take some profits off your trade and then set a stop loss on the remaining shares at $91 (this only applies to those who acquired GLD below $91).

What this will do is protect your gains that you have built up thus far. In the event that resistance at $100 becomes a turning point and gold begins to move down wards then you will have protected your gains in case the price declines further.

I have identified two support areas on the chart shown below. Both are trend lines that should serve as good support on any pullback in the price of gold. If gold does pull back to support (and does not break below it) you would have a good risk/reward spot to enter gold ‘long’.

Another trade scenario for those who are not in gold (GLD) at this time would be to wait and see if GLD breaks above $100. It would be at this point where you can initiate a ‘long’ trade in GLD. Again, risk to reward is key here. Always have a significant ‘line in the sand’ to know if a trade is not working and your entry price is close to your exit point, this keeps losses to a minimum. An important rule for all traders is to always know where your exit is before you ever step into a trade.

In the example above of going ‘long’ on a break over $100 you set your exit on a break back below $100 for that could be a signal of a failed advancement. Each trader will have different risk tolerance levels that they are willing to take, personally I use about 1.5% below the support level ($100 in this example). It is also important for traders to understand that in order for a successful risk/reward trade profile to work you have to initiate the trade at a price that is close to the support level.

But remember, you don’t go ‘long’ if the price moves ‘below’ the support levels as that would signal a breakdown in the price and your chances of a successful trade would be greatly reduced.

Lets say for example that GLD pulled back to support on the chart, and by the time you noticed it the price began to move back upwards again. Now the price is 5% higher than the support level so what would you do? You would let it go, for if you were to initiate the trade at a level that was 5% higher than the support level (and you are using that support level as your exit point) then you already have a built in potential for a loss of 5% if the trade fails. Never ‘chase’ a trade, if one gets away from you don’t fret, another will come along.

The best trades are always those that come to you, not you chasing them. Have an exit strategy that minimizes your potential for losses and remember that you always allocate your trading capital sparingly, not ‘all in one basket’.

Gold (GLD) Chart