Today we are going to look at some possibilities that could happen with the price of gold. The key word here is possibilities, not guarantees. We will look at where the price is currently and what may happen in the next week or so. The price of gold has been moving down over the last few months from nearly 2000 down to the mid-1200 level.

The first thing we want to look at when analyzing a chart is the trend. Take a look at the chart below to see one way you can define the trend.

In this example, we are using a 40 period simple moving average to help us determine if the price action is bullish or bearish. In this case the moving average is pointing down which is considered bearish. The price is also sitting below the moving average which is confirming the strength of the down trend. The reverse would be true for an uptrend in that simple moving average would be pointing higher while the price is moving above it. There are situation where the price is not below or above the moving average which would indicate that the trend is not as strong as we might want it. In that situation, make sure you have other confirming indications telling you the trend is strong enough to enter into a long or short positions.

Once we have defined the trend we can look at the next most important aspect of the chart – support and resistance. The goal of looking for these areas is to know where the price may have difficulty moving beyond. It can also help know where the price may be getting ready to break up or down. Take a look at the chart below as we add support and resistance lines.

In the chart above we have added a line of support and a line of resistance. Currently with the strength of the down trend we will have a slight bearish bias but that does not mean we could not trade bullish move on a breakout to the up side. You will also notice that the price is consolidating between the support and resistance lines. As the price consolidates in this area we will begin to look for a breakout to the down side. As the price moves below the support area we will look to take a short trade. Should the breakout happen above the resistance line we can take a long trade is we want to be a bit more aggressive. Should we decide to be a bit more aggressive, make sure you lower your position size on the trade so you don’t take too much risk.

In order to properly evaluate the chart of gold, or any other chart, you will want to first identify the trend followed by the areas of support and resistance. Once you do this you will better understand the direction you should be looking to trade. Take some time to practice determining the trend as well as drawing some line for support and resistance.

Whether you are new to trading or are a veteran trader, here are three common mistakes you must avoid.

1. Trading too large of position sizes

An extremely common mistake many traders make is to risk too much per trade by trading too large of position sizes. A good rule of thumb is to trade a maximum of 2% risk per trade (1% for a beginner is a good idea). The first thing to do is to determine what that risk per trade is in dollars. If you have a 10k account we can then risk up to $200 per trade. (10k account X 2 %) The next thing to determine would be the total share to trade or the position size based on the $200 maximum risk. The way to calculate the position size is to calculate the risk per share. To determine the risk per share we calculate the difference between the entry price and the initial stop loss level. For example, if our entry price is $25 per share and our initial stop loss is set at $24. Based on this example the risk per share would be $1 per share so we could trade up to 200 shares and limit our risk to a 2% maximum.

2. Entering trades too late

The second common mistake is to enter a trade late or “chasing” a trade. If we pass up or miss a setup and the market moves in the direction of the potential trade, a trader often has the inclination to enter the trade late. Fear of missing a big move plays an emotional role on our trading. We must avoid this tendency to enter a trade late because often when we enter a trade late we have already missed most of the move. In short, don’t enter a trade late!

3. Not using stop losses

The third common mistake is not using stop losses. One of the hardest things for a trader to do is to sit and watch a trade go against you and be taken out by a stop loss. If the set up was solid and the stop loss was set at a recent support or resistance level, depending on going long or short, then we have a predetermined risk for that trade. If you if you don’t use stops, you increase the risk or exposure in that specific trade. This is a very bad habit to get into. So the rule is: Always use a stop loss to cap the risk in the trade. Also, don’t adjust the stop loss once you are in a trade. All this does is INCREASE the risk in the trade after you have entered with a proper initial stop loss.

If you can avoid these common mistakes you will be much more disciplined trader. Successful, disciplined traders must avoid over trading, chasing trades, accepting larger losses then necessary by not using a stop loss and risking to much per trade and staying in a trade too long after it has failed to move in the direction expected. Stay disciplined and trade well!

Generally speaking when we place a trade order in any of the equity markets we have a 50/50 chance at being right and winning on the given trade. If we have developed a trading method that even marginally increases the likelihood that we will win as long as our risk/reward is in line we will be successful traders. If we have developed a method that gets us on the right side of the market a high percentage of the time even if our risk/reward ratio is out of line a little we will still be successful traders. If everything that I have stated is true, which I believe that it is, then why aren’t there more successful traders?

What I have described above is one my most fundamental beliefs around trading and to a large degree I believe it is common sense. If we can be right approximately 50% of the time without even trying because the market will only go up or down. Then we also can figure out a way to help us to increase the odds that we will be on the right side of whatever direction it takes. I am then led to another one of my fundamental beliefs around trading. That belief is that we don’t necessarily need to win more we need to lose less.

Stating that you want to win more and stating that you want to lose less at first may sound like the same thing but they aren’t, they are very different statements. If you want to win more you will likely need to tweak whatever trading method it is that you are using to take it for example from a 60% winning method to a 65% or a 70% winning method. If we want to lose less we are not looking to increase the number of wins that we are enjoying we just need to cut down on the losers. The big question of course is exactly how do we do that?

There are allot of ways that this can be accomplished but one thing that I know traders do, especially less experienced traders, is they trade against the larger trend that is going on in the market as a whole. I am not referring to the trend of the specific issue that you are trading, I’m talking about going against the trend of the major market averages. The reason that I believe being in step, at least to a degree, with the market at as whole is important is because an average is called an average for a reason. It is the middle of something. When we see that any average is going in a particular direction, for that to happen more of the items that comprise the average must be going in that direction than in the opposite direction or the average could not be going in the given direction. This concept is probably learned in elementary school as basic math 101 but I don’t see allot of traders applying the concept to their trading.

If the majority of the stocks in the market are moving in a given direction unless there is something that makes the specific stock or industry that you are looking to trade move in the opposite direction, counter to the market at large, why trade against it? The path of least resistance usually is following the crowd which in this case is a market average so simply by only trading issues that are moving in the same direction as the current averages you should be able to reduce your losses without even concerning yourself with winning more which will automatically increase your winning percentage.

In today’s article we are going to discuss the topic of position sizing is in the Forex market. The first thing we want to look at is the various lot sizes available. Generally speaking, the different types of lots are as follows: standard lots, mini lots, micro lots and nano lots. Different brokers may offer other types of lot sizes so make sure you check with your own broker to confirm the sizes you are trading.

Standard lots generally represents 100,000 units of the base currency being traded. The base currency is the currency that is located in the first place of the currency pair. So for the EUR/USD the base currency is the Euro, for the GPB/USD the base currency is the pound. So if we were trading one standard lot of the EUR/USD we would be trading 100,000 euros. If we were trading the USD/CHF we would be trading 100,000 U.S. dollars.

Looking at the other types of lot sizes we need to move down by a factor of 10 the unit sizes we are trading. So if we were trading a Mini lot we would be trading 10,000 units of the base currency, if we were trading micro lots we would be trading 1000 units of the base currency and if we were trading nano lots we would be trading 100 units.

As we look at our position sizing in the forex market we will use various lot sizes to correctly position size and keep our risk where we want it. If we only traded standard lots we would likely be taking too much risk at times. The goal with position sizing is to keep our risk at the acceptable level for our own trading. The suggested maximum risk would be 2%. This means that if the trade goes against you, you would be closed out of the trade with a 2% loss. This also gives us the option of risking less. Many traders will use 1% or lower in their trades. The choice is up to you and how much you want to risk.

Now, let’s take a look at an example of how to correctly position size based off of a risk 1% risk level. Here are the steps:

1. Determine how much 1% of your account would be.
   If you have an account size of $10,000 you would multiply that by 1% to get $100. This would be the most you would lose in your account per trade.

2. Determine the number of pips risked. This is the difference between your entry and stop loss.
   If you traded the EURUSD and entered long at 1.3000 with a stop loss at 1.2950, your risk in the trade would be 50 pips.

3. Determine the lot sizes.
   With a smaller account you will likely be trading mini lot sizes so each 1 pip move in price would equal a $1 profit or loss.

4. Determine how many lots to trade.
   Take the maximum loss amount of $100 and divide it by the number of pips risked of 50.
   $100/50 = 2 mini lots

Now you know how many lots to trade. You could trade 2 mini lots and if you got stopped out you would only be down 1% of your account. A standard lot would put you over this amount so you would only be able to trade mini lots. Take some time to practice how you size your trades to make sure you are never taking too much risk in your account.

When we look at trading metals, as with any other trading instruments, it is important to understand the concept of overbought and oversold. These terms can be a bit misleading as they imply that the current state cannot move any further. For example, if the chart is in an overbought level, many traders will feel that the buying is over and it cannot go any higher or if it is oversold then it can’t move down any more. This is an incorrect assumption and one that will cause you much grief if followed. The fact is that many times overbought or oversold conditions can remain in those areas for an extended time and the price will continue to move in overbought/sold areas.

The idea behind overbought and oversold is to simply give us an idea of where the price “might” begin to slow down and reverse. The key word here is “might”. This is where the concept of confirmation comes into play. Once we see price in these overbought/sold areas we need to look for confirmation that the “might” has become “fact” through confirmation.

There are many different types of indicators that can be used to help us better visualize these areas of overbought or oversold. One of the most commonly used ones is the stochastic indicator. This indicator is an oscillator that moves up and down along with the price on the chart. With this indicator it will use the key levels of 80 and 20 to determine overbought and oversold. If the indicator is above 80 it will be considered overbought and if it is below 20 it will be considered oversold. Take a look at the chart below as it shows the different levels.

Here you can see the 80 and 20 levels, which indicate overbought and oversold. Also notice the two arrows pointing up. Both these arrows show where the price was below 20 and considered oversold. This is where you would think the price should go up if you were following the ideas of oversold but in reality you can see that the price just moved sideways, then has continued to drop since. This why we need to have some sort of way to confirm that the price is beginning to move back up.

One simple way is to look for the down trend to be broken. If, for example, you were to see the stochastic line below the 20 level and the trend was down, you would wait to see the price begin to move back above the down trend line in order to confirm that the price was going to move back up again. Or, you could wait for another indicator like the moving average to start to move up again. There are many things you could use for confirmation, just make sure you are using something to confirm the overbought or oversold areas.

One of the good thing about looking for overbought or oversold areas is that they can give us an idea of when the price may be getting ready to change. Just make sure you use something to confirm it. Take some time to see how you might include this into your trading to help you better visualize the potential areas of reversal.

Trading in the direction of the trend is the best and easiest way to get started trading. We covered identifying the trend in the last article. Now let’s discuss entering and exiting trades based on a few basic technical indicators whether we are in a trending or ranging market.

1. Moving Averages
Moving Averages can provide simple and objective buy and sell signals. They can tell you if an existing trend is still solid or can confirm a trend change. Remember, moving averages are lagging, so they will not tell you, in advance or immediately, if a change has occurred, but are best at confirming a trend. Many systems use a combination of moving averages on a chart as a simple and effective way to identify trading signals. One popular combination of moving averages I like to use for this purpose is a 9 and 18 period moving average. Signals happen when the shorter line crosses the longer line to enter long and when the longer line crosses below the shorter line to sell short. Since the moving averages are trend-following indicators, they often will work better in a confirmed trend when the price action moves above or below a 40 period moving average. This also can provide good buy/sell signals when the price action moves above or below the 40 period moving average line. Remember from earlier, a trending market most conducive to using moving averages will have a high ADX indication.

2. Oscillators
Oscillator indicators are great to help identify overbought and oversold markets. While moving averages are great to use in a trending market, oscillators work very well in non-trending, range bound or shallow trending markets. Stochastics are probably the most famous or commonly used oscillator indicator. The Relative Strength Index or RSI is also a popular oscillator indicator. I really like and use the Stochastics indicator most often. Both the Stochastics and the RSI work on a scale of 1 to 100 percent. With the Stochastics, a reading over 80 percent of 100 indicates an overbought market, while reading below 20 percent of 100 indicates an oversold market. The RSI indicator has readings of 70 percent and 30 percent instead of 80/20. Both generally use 14 days as the default setting. Using either oscillator indicator allows a trader to identify potential areas where the market might turn in the opposite direction. When used in conjunction with support and resistance the oscillator become a powerful tool to identify buying or selling signals especially in a non trending or range trading type of market.

To wrap it all up, technical trading is basically using the charts to mainly identify the type of market we are in, either trending or ranging. We do this by identifying the price action and establishing support and resistance levels, then using a couple of indicators to identify good entry and exit points based on those indicators.

Many people want to make trading more complicated; however, the simpler the better. Remember: successful technical trading takes practice, practice, practice!

Today we are going to discuss one of the most important topics of trading. Knowing how to use and understanding what the trend is all about may be one thing that we can better use to help us improve our trading. Sometimes we may think that the trend is too simple an idea so we end up not paying much attention to it. This may be a mistake that is costing us in our trading. If we can begin to use the trend to help us in our trading we may find our rate of success increases.

With that being said, let’s discuss what the trend really is. The trend is simply the direction or momentum that is happen with the price action on a chart. It is generally thought that there are 3 trends – up, down and sideways. We will keep it simple so we will use these three general directions. Understanding that the trend is up will point us in the direction we should be trading. An uptrend tells us that the market is being bought which causes the price to move higher. When this momentum is moving up we want to be buying along with it. If we try to sell or short when the trend is up, we are fighting the natural movement of the market. It would be like trying to ski up hill. All the forces of nature are trying to get you to ski downhill but we are trying to fight it by skiing up. The same holds true in trading. If everything points to the fact that the price is going down but we are trying to buy, we are fighting the natural movement of price.

Once we get this fact in our head we can begin to see what we should be doing more naturally. The old saying of “trade with the trend” or “the trend is your friend” still holds true.

In looking for opportunities to trade with the trend, we will want to have some way to identify the trend. One simple way is to just look at what the price is doing. If it is going up and making higher highs and lows, then the trend is up. If the price is moving down by making lower highs and lows then the trend is down. Sometimes this is the easiest way but sometimes we may need another way to visualize this. Using a Simple Moving Average is another easy way to visualize the trend direction. If we were to place a 40 period simple moving average on the chart, we could easily see the direction it is pointing. If it points up then the trend is up, if it is pointing down then the trend is down.

In addition to using the moving average on one chart, you can apply the same idea on multiple charts. For example, if you were looking to place a trade on the 15 min chart you could also look at the hourly chart to confirm the trend. You could use the rule that both the hourly and 15 min. trends need to be pointing in the same direction in order to take the trade.

Try this out to see if it can help you improve what you are doing with your trades.

New traders often ask me, “What is the easiest way to get started trading?” So, here are a few pointers that I give to newer traders to help get them started. Understand, to learn how to trade is like learning to play a musical instrument, or learning a foreign language. If you can identify a few simple rules and then be patient enough to practice, just about anybody can become successful. Of course you should always practice using a paper trading account before trading real money.

Here are a few simple steps to get started:

1. Identify the Trend
It is important to spend some time analyzing the trend. Some traders refer to this a identifying or mapping the trend on the charts. Market trends come in many sizes – long-term, intermediate-term and short-term. First, determine which one you’re going to trade and use the appropriate chart. A good way to find the trend is get a longer term perspective by looking at the longer term charts, using either daily or weekly charts to help identify a good long term view. One good way to confirm a trend is to use a 40 period simple moving average. Then wait until the price action moves above the 40 period moving average for an up or bullish trend, and for the price action on the chart to move below the 40 period moving average for a confirmed down or bearish trend.

Once we have identified a longer term trend, we can then go to shorter term charts, perhaps hourly charts, to help us determine a view of the shorter term trend. When we have both the longer term trends identified, it is important to trade in the direction of the trend. This is true, even if trading very short term charts such as 5 or 15 minute charts. You will find that you will have better trader if they are in the direction of the combined longer term trends or the trends on the higher time frame charts.

2. Identify the Strength of the Trend
Not only is the trend important, but we also want to have an idea of how strong the trend is, either up or down. One good was to determine the strength of the trend is to use the Technical Tool referred to as the ADX or Average Directional Movement index. The Average Directional Movement Index (ADX) line helps determine whether a market is in a strong or weak trend or no trend at all (trading sideways). It measures the degree of trend or direction in the market. A rising ADX line suggests the presence of a stronger trend. A falling ADX line suggests the presence of a weaker trending market or the absence of a trend.

3. Identify Entry and Exit Signals Using Moving Averages
Moving Averages can provide simple and objective buy and sell signals. They can tell you if an existing trend is still solid or can confirm a trend change. Remember, moving averages are lagging so it will not tell you in advance or immediately if a change has occurred. Many systems use a combination of moving averages on a chart as a simple and effective way to identify trading signals. One popular combination of moving averages I like to use for this purpose is a 9 and 18 period moving average. Signals happen when the shorter line crosses the longer line to enter long and when the longer line crosses below the shorter line to sell short. Since the moving averages are trend-following indicators, they often will work better in a confirmed trend when the price action moves above or below a 40 period moving average. This also can provide a good buy/sell signals when the price action moves above or below the 40 period moving average line. Remember from earlier, a trending market most conducive to using moving averages will have a high ADX indication.

Try these three simple steps by placing some trades in a paper trading account and see how trading with the trend really can have a positive impact on your trading.

Numismatics is the study or collection of currency, including coins, tokens, paper money, and related objects. Ever since I was very young, the concept of money and precious metals has always fascinated me; specifically, I was interested in what gives them their value. I began trading currency futures in 1992 and, of course, the Forex when it was conceived. So maybe that’s part of what attracted me to those markets. About fifteen years ago, my grandmother gave me what was left of my grandfather’s coin collection. I did not look at it at all until a few months ago and I, once again, became totally fascinated with money and its value.

The more I think about coin collecting, or minimally paying attention to the coins that are received during normal daily transactions, the more sense it makes to me. It only takes a few minutes to look at a coin to determine if it currently has any value other than its face value and if it likely ever will. Oddly enough, more rare or scarce coins are still in our money supply, so it is very likely that, if you pay attention to the coins that you receive, you will inevitably end up with coins that have a greater value than their face value. I went to the hardware store and purchased an item that was just under $5.00. I gave the cashier a $5.00 bill and received my change. One of the coins that I received was a 1964 nickel. I don’t need to know what the value of a 1964 nickel is; all I needed to know is that the US stopped producing silver nickels at the end of 1964, which means that I received a nickel that is worth approximately fifty cents. The nickel that I received is 90% silver. So the value of it is in metal content, not the fact that it’s a nickel and not because it is rare.

Wheat pennies were produced until the end of 1958, but you can still find them in circulation from time to time, probably a lot more often than you would expect. A wheat penny in horrible condition may still be worth as much as five cents, but values can go up substantially from there. The value, of course, will depend upon the specific year and mint mark, the condition of the coin and its scarcity. The point is that coins are passing through our hands every day that are worth more than their face value. Canada has stopped producing pennies altogether and the government is encouraging its citizens to return all pennies to them, I’m pretty sure that I’m keeping any Canadian penny that I some across. They may not be worth more than a penny now but there is a good chance that they will be worth more than that at some point in the future.

One of the appealing things to me about coin collecting, aside from the fact that it’s money and how can you go wrong collecting money, is that if you run across something that would be considered the equivalent of coin collecting garbage or a coin that has absolutely no value in the coin collecting world and will likely never have any collectible value, the minimum that the coin will ever be worth is its face value. Many other objects that are collected really aren’t worth much and, in some cases, they aren’t even worth the aggregate value of the material and the time that it took to make them. But money will always be worth at least its face value.

You can often times spot mistakes in the stamping of coins just by looking at them, though they are somewhat rare and you can occasionally find coins that have been double stamped. An easy and more recent thing to look for right now is a 2009 penny. The Lincoln memorial pennies ended in 2008 and the shield on the reverse side began in 2010, but in 2009 there were 4 reverses depicting different stages of Lincoln’s life. I have an ad that came out in a local paper as soon as the 2009 pennies were issued; the ad was selling a complete set of the 4 pennies for $2.50. Needless to say it isn’t common to find a 2009 penny in circulation right now, but there are some that you may run across. You don’t need to be a coin collector, or even all that interested in coin collecting, but just by paying attention to the change that you receive on a regular basis, which is money that you are going to receive anyway. You may actually find that you can make money with your pocket change!

Is it possible that we could see gold back down to $1,000 an ounce? It’s hard to believe that not too long ago we could hardly imagine that gold would be moving up to that price. Now it’s hard to believe that it could get that low again. The $1,000 level was last seen in October, 2009 and yesterday we hit a low of $1,221.56, which has not been hit since September, 2010. Regardless of whether or not we reach $1,000 or not, we are certainly seeing a very bearish metals market right now. Take a look at the chart below to see where and when these levels were last reached:

When dealing with a market like we are seeing currently, we need to avoid trying to “pick” the bottom of this move. Often at times traders will try to outsmart the market and jump in to bullish trades before the price action actually confirms that the “bulls” are coming into the market. Doing this can cause us problems because if the price does not go up we are sitting in a position that can continue to move quickly to the down side.

Looking for signs of reversal are important so you can be prepared to take advantage of when the buying opportunities are actually there. This could be something as simple as waiting for the down trend line to be broken to the up side or a moving average to being to move back up again. What we don’t want to do is think we know what is going to happen, before it actually occurs.

As we look at this chart, which is the weekly chart of gold, does anyone really know how far it is going to go down or when it is going to stop and begin to move up again? Of course, the answer is, “no”. So we need to wait for some evidence on the chart to tell us that the change is beginning. Once the signs are there, then we can look to trade it moving back up.

If we can’t see signs of bullishness we need to avoid trying to buy gold. Instead, we should be looking for opportunities to take advantage of the bearishness in the market by shorting gold. The first ingredient in charting is to identify the trend that is happening. This key element of trading should not be overlooked. This would mean that because the current trend is down we should only be looking to short. Now don’t just go out and short gold, you will still want to follow your rules for entering trades. This means that you need to look for proper shorting setups and triggers to enter a position. As we look for these setup in the direction of the trend we are trading on the correct side of the market.

Take some time to review where you might short the chart of gold, plus, in addition to the trend, begin to identify where support and resistance is located. Knowing these things will allow you to take trades with the highest probability of success.