Gold, displayed as XAU/USD on trading platforms, is one of the most commonly traded commodities thanks to its high liquidity. In this article, you will know 4 tips to trade Gold more effectively.
Tip #1: Keep an Eye on Important U.S. Economic Data Releases and the USD’s Performance
Gold prices and the US Dollar have a negative correlation. USD depreciates when Gold prices rise, and vice versa.
Therefore, keeping an eye on important U.S. economic reports and the Greenback’s performance when trading Gold is highly necessary. When you stay on top of the USD’s activities, you will be able to make better predictions on Gold prices’ movements.
Use an economic calendar and track the following data of the US:
- The Federal Reserve’s interest rate decisions and meetings
- Consumer Price Index (CPI)
- Non-farm Payrolls
- Employment Change and Unemployment Rate
- Manufacturing PMI
- Retail Sales
In addition, you should also observe live news updates of the US Dollar on financial portals such as CNBC or Bloomberg.
Tip #2: Consider Using RSI and Fibonacci Tools When Conducting Technical Analysis on Gold Prices
The RSI and Fibonacci tools are techniques that have been proven to be particularly effective for analyzing Gold price movements. Fibonacci tools can help you find the significant turning points, while the RSI can help with confirming the trend or identifying overbought and oversold conditions of Gold prices.
Note that when using the RSI, you should adjust its parameters to make the indicator match your trading strategy. For example, if you are a long-term trader, consider increasing the RSI’s period setting instead of using the default 14. The higher the period setting, the smoother the RSI and the more accurate the long-term trading signals.
Besides, don’t forget to do back testing to find the best parameters for your RSI indicator. If you see Gold prices bounce many times when the RSI hits 35, don’t be afraid to add and use this threshold.
Tip #3: Use Trend Lines and Channels Instead of Moving Average to Identify Gold Prices’ Trends
The Moving Average is an effective trend-following indicator in Forex trading. However, for Gold trading, this indicator has been proven to be less effective than manually-drawn trend lines and channels.
So, consider using these tools when trading Gold. They not only help you identify Gold prices’ trends but also help with determining significant support and resistance areas.
Besides, don’t forget to identify significant highs and lows as they can also be strong support or resistance levels.
Tip #4: Use Multiple Time Frame Analysis
Gold is a highly volatile asset. Therefore, if you do not take a comprehensive and meticulous look at its performance, you may get trapped by its false moves.
If you often trade on short-term charts, use medium or long-term time frames to determine the overall trend and important support/resistance levels of Gold prices. The higher the time frame, the stronger the support and resistance thresholds.
Conversely, if you often trade on long-term charts, use short-term time frames to fine-tune your entries, stop-loss, and take-profit points.
So, you’ve just learnt 4 tips for trading Gold more effectively. To tie everything up, here is the list:
- Keep an eye on important U.S. economic data releases and the USD’s performance
- Consider using RSI and Fibonacci tools when conducting technical analysis on Gold prices
- Use trend lines and channels to identify Gold prices’ trends
- Use multiple time frame analysis
If you are new to trading, you can trade gold with small order sizes to limit the risk. Besides, don’t trade on any charts lower than 1-hour because Gold prices can be extremely volatile on those charts.