The unstoppable uptrend on Gold may cause irrational and very costly decisions. For the past three months, we've seen an unprecedented surge, with new highs being set almost daily.
In this article, we will discuss critical mistakes that traders often make in the midst of such a bullish run and explore the strategies to maximize your gains, trading Gold or any other financial market.
1. Technical Indicators Lie
Always remember that technical indicators that measure the momentum or strength of a market trend, that show the overbought and oversold conditions, fail miserably in strong bullish or bearish rallies.
I am talking about such indicators as Relative Strength Index (RSI), Moving average convergence/divergence, Stochastic, etc. The fact that one of these indicators show overbought condition or even a bullish divergence most of the time will be a false signal.
Above is the example of an overbought RSI on Gold chart on a daily.
After the market became overbought, it went 1000 pips higher before the first pullback.
2. It is Never too High
When the market sets new all-time highs, people typically start saying that the price is already "too high" and begin to close their long positions or even open short positions.
Remember, that the notion of too high is very subjective.
Look at a bullish rally on Gold in 2020.
I well remember that when the market updated a yearly high in April,
People start staying that it is already "too high".
However, the market kept rallying for 4 consequent months, constantly updating the highs.
Such a market behavior may persist for a significant period of time, be prepared for that.
3. Beware of Overconfidence
Even though bullish rallies may be long, always remember that they can not last forever.
At some moment, correction or even bearish reversal will occur.
For that reason, open long positions carefully, setting realistic targets.
4. Protect Your Gains and Maximize Your Profits
When the market is trading in the uncharted territory, it is almost impossible to predict where it will find the resistance. With a take profit level, you may close the trade too soon.
If you see that the market is driven by euphoria and keeps setting new all-time highs, remove take profit and apply a trailing stop instead.
Keep that below the recent supports, use ATR or some other classic technical tool.
That will help you to benefit from the entire rally.
5. DON'T SELL BULLISH RALLY
When the market is driven by greed, euphoria or fear, never go against the market. The chance that you will accurately predict the turning point is close to 0.
6. Beware of Lower Time Frame Bearish Patterns
In a strong bullish trend, classic bearish reversal pattern have low accuracy, especially on minutes time frames.
Look at a sequence of double tops on 15 minutes time frame.
These patterns are a great example of manipulations and how smart money induce retail traders to start shorting.
In a such a strong bullish trend, the only strategy to rely on is trend-following trading.
7. Do Not Rely On News
In times of strong bullish/bearish rallies,
the data in economic calendar and important news releases stop giving the reliable signals.
In times of bulls/bearish runs, emotions become the main driver of the markets, not the fundamental data.
8. If You Missed It, Let It Go
I can imagine, how terrible you may feel yourself if you did not manage to buy Gold on a good price. It's sad, and it is painful to watch how the market goes higher and higher without you.
But always remember a simple rule: if you missed the rally, let it go. With each new high that the market sets, your potential gains drop dramatically.
And of course, buying Gold now it is already too late.
I hope that these tips will help you not get burned while Gold is on fire.
Stay calm and patient, and do not let your emotions intervene.
