c14 JWBT016-Busby September 30, 2008 14:30 Printer: TBD
Going for the Gold 141how Geof does it. First, he identifies important key numbers. Gold, just
like other trading products, has important support and resistance levels.
Begin by studying charts and locating the levels of support and resistance
near the current trading price. Study monthly, weekly, and daily charts.
Once you have a feel for how gold likes to move and know support and
resistance levels, you may want to begin dabbling. It is probably a good idea
to try simulations first, and it is always recommended that before trading
you study, learn, and observe.
Geof looks for breakouts and buys pullbacks. He trades gold futures.
Electronically traded gold futures open at 6:16PM. Geof generally makes
his move between 6:30 and 9:30PM. Note the opening price and watch
movement in relation to that price. If there is a new high, he puts in a buy
order at the open. Many times, there is a pullback to the opening price
and his order is elected. After returning to the open, prices often con-
tinue the original path back up. He follows the same steps for shorting
gold.
At the time of this writing, mini gold moves an average of 24 points in
a session, which translates into a value of $800 per contract. Always know
the average true range (ATR) of anything that you are trading. In that way
you are better able to keep expectations in line and identify profit targets
and stop/loss placement.
Because Geof swing trades gold, he gives it room to move without hit-
ting his stop with every bobble. If he is long, he puts his initial stop be-
low the previous day’s low. If he is short, he puts it above the previous
day’s high. That means that he is risking about $800 to $1000 per con-
tract. If Geof wants to stay in the trade for a longer period of time, he may
use the weekly support and resistance levels for stop placement. That is, if
he is long, he may put his stop below the weekly low, and if he is short, the
stop/loss order may go above the weekly high. In all markets prices bobble
up and down. If you want to stay with a trade for a longer period of time,
it is essential to give the market room to move. A brief dip down will occur
even in the strongest bull markets, and vice versa. If stops are too tight,
money will be lost even if the analysis was right on the money. Once Geof
is making money and prices are going his way, he adjusts the stop to lock
in profits and reduce risk.
Risk is a very personal issue. For some traders, the risk that Geof takes
is too big to take. If they are wrong in their analysis or the market is mis-
behaving, the stop gets hit and the money is lost. For other folks, that stop
is well within their risk tolerance. Remember that risk is personal. Do not
take risks that you cannot afford. If there is too much risk involved in a
trade, let that trade go. There are many things to trade—stocks, options,
commodities, futures—find trades that you can afford and stay away from
those that are too rich for your trading pockets.