Gold, popularly known as yellow metal, is one of the safe havens for conservative investors. There are people who think that the price of gold will always increase. That is why most people dump all of their extra money on gold. No doubt gold is certainly a safe investment, however, that does not mean that the price of gold will never fall. Gold prices also rise and fall with changes in supply and demand and various other macroeconomic factors. That’s where the gold futures technical analysis comes into play.
The application of technical analysis of gold is the only way left to predict its prices. Here in this blog, we will learn why we should carry out such technical analysis and how we can do it. We will also see if the analysis really works.
Why Carry Out A Technical Analysis For Gold?
Technical analysis for gold is looked at with raised eyebrows by many even today. People doubt its effectiveness in guessing the future prices of gold as it gives results based on certain chart patterns and mathematical indicators. Technical analysis is not entirely considered a perfect, foolproof way of analyzing stock markets or any financial avenues. In fact, when it comes to gold, the level of scepticism rises further because gold is usually traded by a set of people different from regular stock investors.
However, at Yatrader, we strongly believe in and also recommend gold futures technical analysis and its universal application irrespective of market, instrument, exchange, etc. That’s because when there is sufficient historical data to find the price fluctuations based on patterns and events, we believe, the technical analysis baselines those for an accurate prediction of the future.
Moreover, it should be noted here that such technical analysis is based on principles like ‘price discounts everything.’ Hence, it considers the current as well as past prices to guess the future. The prices of gold move based on several international macroeconomic factors. It is not entirely possible to keep track of everything. All this makes the technical analysis for gold more interesting. The gold futures technical analysis ignores the external factors and focuses on the chart.
How To Carry Out A Technical Analysis Of Gold?
As discussed, the gold futures technical analysis is universal. There are no special or specific rules for gold and the patterns and indicators that work for stocks also work for gold. Here are some points you may want to consider to ensure that your analysis of gold prices is perfect:
- If you are interested in picking one of the patterns or indicators, you may want to stick to patterns such as Head and Shoulders, Doji, bullish/bearish engulfing, double tops, etc.
- Among the varying indicators, it is recommended that you try looking at the moving average crossovers, RSI, MACD, etc.
- Now is the time to apply these indicators or patterns on higher timeframe charts and not intraday. This is specifically due to the fact that the movements of gold are not always that volatile.
- In most countries, gold is traded both as a commodity and as an ETF, and you may pick any of them you are more comfortable with.
Does The Gold Futures Technical Analysis Really Work?
As per the words of Stockcharts, technical analysis forecasts future financial price movements on the basis of past price movements; like weather forecasting, the gold futures technical analysis does not give absolute predictions about the future but helps the investors anticipate what they can likely expect to happen to the prices over time.
Technical analysis lets you look at the price trends to make decisions to buy/sell. More people investing in the stock will mean a good time to buy, and vice-versa. One key point to note to be successful with gold futures technical analysis is the identification of trends. That’s where indicators and price action help. Here are some of the few key assumptions to base your analysis on:
- Price discounts everything: A company’s health is known by the stock price at a given point and nothing else matters.
- History repeats itself: People’s reactions to stock movements ensure that the price history repeats itself. So you can base your current trading decisions on historical price movements.
- Price moves in trends: Once a trend is established, price movements is in that direction.
- How is more important than why: It is more important to know how the price reacts to a buyer’s action rather than why s/he bought the stock.
Six Tips For Gold Technical Analysis
Here is a list of six tips for you to trade in the yellow commodity:
- Identifying the long-term trend: Irrespective of the trading style you use and whether or not you incorporate fundamental analysis in your trading strategy, as a gold trader you need to check the different long-term time frames.
- Identifying if the trend is making corrections in the other direction: Next, you should take a look at the weekly timeframe to check if the commodity’s trend is making any corrections to other direction in the medium term.
- Identifying important price levels daily or weekly: Third, determine the smaller time frames, the levels of resistance/support.
- Knowing the intermediary trend: After the resistance and support lines are plotted, you may analyze the intermediary trend for a shorter time frame.
- Using reversal signals to trade gold: Next, use the many technical methods to identify reversal signals when trading gold. This is similar to trading Forex. This includes oscillators like RSI and momentum indicators like MACD.
- Double-checking one’s own stop loss and entry/exit points: Lastly, after you have determined your entry and exit points, always double-check when putting in a protective stop loss.
Conclusion
We highly recommend using technical charts and indicators for not just gold, but also other financial instruments for trading on markets. It is easy and most accurate for the prediction of price movements. Although gold futures technical analysis is a relatively novel concept used by a few, it is something you need to dig deeper and sooner into.
