Trading gold and silver can make you a fortune. The best way to trade gold, silver or other precious metals is to trade futures contract. Now, trading futures can be risky. Futures contracts move fast and show a lot of volatility. Traders profit from this volatility. But, if you are not comfortable with risk then you can keep on trading gold and silver ETFs like the SPDR Gold Shares (GLD) or the iShares Silver Trust (SLV) and other precious metals ETFs. But the point is this that anyone can learn futures trading and profitably trade gold and silver futures contracts.
Let’s illustrate this precious metals trading strategy with an example. A gold futures contract consists of 100 ounces. Now, the margin requirements can vary from one broker to another but it is generally around $5,000. This means you can control 100 ounces of gold with $5,000. Each point the gold futures contract moves up or down, you make $10 or lose $10. Suppose, you bought the gold futures contract and it moved up by 50 points. You make $500 less the commission and other fees).
Let’s get back to our gold trading strategy. Suppose, you buy one gold futures contract that means 100 ounces of gold. It closes up by 30 points in the next few days. You are happy. By the end of the week, it gains another 20 points. You sell your gold futures contract. So, with this one gold futures contract you have made 50 points. That means $500. This is your first trade in a series of four trades.
Now, you make your second trade by buying two gold contracts as the gold market is in an uptrend and you are confident that it will continue to do so for the short term. You wait for a few days and the contract is up by 50 points by the end of the week. You sell your two contracts and take profit of $1,000. You have just completed the second trade in your series of four trades.
Next week you buy three contracts. Rumors are flying about gold prices rising again. You want to profit from it. This time, the contract goes up by 100 points. You sell your three contracts and realize your profit of $3,000. This is the third trade in a series of four trades.
Suddenly gold prices drop like that did a few days back. You are shocked. But don’t worry; this is the way markets work. You wait for a few days and the prices again start climbing. You buy four gold futures contracts this time. You wait a few days before the contracts each move 50 points. You sell all the four contracts making a nice $2,000. This was the fourth trade in a series of four trades.
Your net profit is $500+$1,000+$3,000+$2,000=$6,500! Not bad! Now, you will start all over again with a new series of four trades repeating what you did above.
You can make these four trades again and again starting from scratch after each four trades. After each four trades, you remove the profit and start again small. This way, you reduce your risk of losing all your profits if the market suddenly moves against you. This is how professional gold traders trade and this is how you should trade. You must have observed that their is nothing much in this gold trading strategy. That’s what it is and that’s how you should keep it!
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