It seems as if the whole market in the world is having holiday in the same time. Even scalping is hardly done in such price!!! OMG, where's the market mover??
Okay then, I think today I will not post a prediction but use this occasion to post my experience and how I do my trade in gold market.
I always say that I'm bullish for gold in long term. in other words I say Gold is always rising.
Of course it doesn't mean without any correction. There are corrections, sometimes real deep correction, but what I mean here is, the price of gold will always rise in the long term.
"Gold production and underground gold reserves:
In 2009 and 2010 world gold production stood at 2,450 and resp. 2,500 tonnes. It is estimated by the U.S. Geological Survey that the world still has gold resources of 51,000 tonnes, with 33,000 tonnes identified and the remaining 18,000 tonnes as undiscovered resources. Thus, with the current annual mining volume, underground gold reserves would last for 20 years."
source: http://goldratefortoday.org/benefits-gold-finite-resource/
Even if we don't count recent economic situation, the world will face a rising price of gold as the result of the lack of supply versus the growing demand (since population is growing, demand is also rising). This is very logic, there's no other substitution for gold function known until this day.
Even oil will have a replacement soon. Although it will not be quick enough because oil business is a very gigantic and involved many super rich people and many powerful countries so it will not that easy when dealing with politics and powerful background. Not to tell how much needed to change the infrastructure for the new type of energy, but we already have a significant clue about the end of the fossils fuels. I think most of us who read my post here will see that oil price will come to zero in his lifetime. This is one article that very interesting to read and as proof that oil era will be diminished soon. (sorry, this article is in Indonesian language. Just use Google translate to read that in English) http://id.berita.yahoo.com/jet-berbahan-bakar-nabati-pertama-tinggal-landas-di-020407418.html
So, what do you think of gold? Something which is depleting but maybe will never have a substitution and the other hand facing the increasing demand?
Now, let's add all the situations we have nowadays.
Today, we have the "irrational" amount of fiat money (in paper, account, check form etc) than we have in history. All big countries such as USA, UK, Japan, Europe countries are adding more fiat money in gigantic amount. Logically, this all fiat money should have underlying assets that warranty its existence. Yes I know, this underlying assets are not only gold, there may be stocks, economy status, capability of government to pay their debt, bonds, property, lands, business, and there are still many that can be named here.
But still GOLD is the most liquid and trusted, and also the most valuable which value will never reduced by anything.
I'll give you the examples. Companies can be bankrupt, the payment of mature bonds can be failed, the stocks can be broke, property although seems more valuable amongst the other but is not liquid and the value may reduce in crisis time. But what is happening to gold? No. It still the best amongst of all.
I still have many to tell about gold, technical or fundamental, that shows gold MUST go up. But I think I will not discuss it here, because it is not my main topic. If you want to know, just googling. There's so many sites you can find that will tell you the facts.
Now, back to our discussion about how I trade.
Just try to get into my mind. What if you were me. What would you do with all this facts that you see and have a bold confidence about where the price is heading?
Yup... Actually I don't even need to explain anything, you already know the answer, right?
Such knowledge and convidence about gold influence my style of trading.
I prefer to open Buy Positions rather than Sell. I think if I have wrong Buy position, sooner or later, the market will pick up my position. But if I have wrong Sell position, it could be a "disaster".
Actually I have some levels of trading gold, sort by the safest to the riskiest one:
1. Invest in gold physically
This is an old fashion way to make fortune of gold but the safest one. This is what our ancestors do to store their wealth. I do it also but not too much.
Suppose that you have fund of USD1.000 which you allocate for investing gold.. You can buy gold about 0.5714 oz at price, let's say $1,750 now.
Let's say gold will rise later to $1,900, then you will have profit as follow:
= 0,5714 x ($1.900 - $1.750) = $ 85.71
2. Invest gold using leverage but don't trade it
Instead of buying gold physically, try to invest it in leverage trading. To do this, we have to secure our investment because we are not holding the physic of the gold. We only have an account in the broker, right? So do these steps:
- Make a due diligence of your chosen broker before investing. The bigger the broker the safer your investment would be.
- Prepare how much idle fund you will put in your investment. Remember, IDLE FUND, not the fund you need for daily use because this fund will be placed in your account for some time.
- Define what is the worst price you believe gold will have correction. Let's say you believe gold will not go lower than $ 1.550 / troy ounce. And let's say the current price is $1.750 which also the price assumed as your buying price. It means that you have to prepare your margin endurance to hold your position if it turns out that gold price is going down after you open buy position at $1.750.
1 Regular Lot size = 100 troy ounce, you will have $100 profit/loss for each $1 change of gold price.
1 Mini Lot size = 10 troy ounce, you will have $10 of profit/loss for each $1 change of gold price.
1 Micro Lot size = 1 troy ounce, you will have $1 of profit/loss for each $1 change of gold price.
For example of this scenario, let's assume you also have $1.000 capital to invest. The calculation will be as follow:
$1.000 / ($1.750 - $1.550) = $5, which means, for every $1 change of gold price you have to hold $5 loss.
So, if the price go $200 lower, you will loss all your $1.000 capital.
Now with the $5 to spend (or gain) for each $1 price change, it means you can buy at maximum 5 MICRO lots of gold which equal to 5 troy ounces of gold.
Assume that you are right, and gold rises to $1.900, then you will have profit:
5 micro lot x ($1.900 - $1750) = $750 (compare this result to physical investment with the same capital)
3. Trade the gold using leverage
I have to remind you that this is the riskiest level. It means you already enter a trading environment and to do this right, you must have ability and knowledge of being a trader. Start with demo account please.
It is almost the same with my number 2 above. But usually I lift up the lot size because in this trading type, I will make cut losses. Basically, I will allocate 5 to 10 times of my investing lot size for my scalping. The logic is, it is easier to get small pips rather than big pips but it also yields a small profit from small pips. To compensate this, put more lot size. But remember that it could become big losses too.
So, I will only do this when I believe there is a scalping path in the market (see my other posts about my scalping path).
Usually, I also limit my total lot size so that it will not exceed at least my $100 margin endurance. For example, if now the gold price at $1.750, then I have to be able to hold the floating loss at least until gold reach $1.650. But of, course I rarely have to wait until that level because usually I dump my loss position at a little bit lower than a certain strong support (in my opinion) if I believe price will go much lower. Compensating it in the bottom by open buy positions and not sell. If I feel that I can hold my position and believe that the price will be back, I will hold it all.
By trading gold with leverage, you will maximize your profit but also increase your risks.
In Conclusions:
I'm not using the standard MM and RR ratio. This standard rules of, saying 2% risk for each position you open, can be learned from the web. Just googling it.
I'm using my own MM and RR ratio that I adjust to suit my trading style. This is very personal and I don't recommend anyone to just use it as I used to because we may react in different way when facing the loss scenario.
Just make your own rule that suit your trading style, and stick to it.
Good luck....
GG - 2012.11.27
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