This article will talk about some of the trading strategies that can limit risk and maximize returns for gold stock investors.
One gold stock trading strategy is to stagger your gold stock purchases. For example, let’s assume you have decided that you want to own shares of Yamana Gold (AUY). Rather than allocating all of your capital to create a full position you’d stagger into your position. You might purchase 100 shares today and then maybe wait another two months to buy another hundred shares. Professional gold stock traders inch into their positions. They can sometimes take between six and 12 months for them to establish a full position.
They define a maximum as a percentage of their overall portfolio. Professional gold stock traders always have the discipline to make sure that they do not continue to buy more shares once they have a full or max position. For example, if I have a maximum position of 2% in the Newmont Mining shares I must retain the discipline to not purchase anymore shares even if the price of Newmont shares has gone down considerably.
Gold stocks are incredibly volatile and there will always be a good opportunity to buy in the future. There’s no reason to allocate all of your capital at one point in time.
Another gold stock trading strategy is to use hedging techniques. Active gold stock traders always look protect themselves in case a position goes against them. Most commonly, they will purchase put options on the price of gold or on an individual gold stock. For example, if gold stock trader owns shares of Barrick Gold and he’s concerned that the upcoming quarter might be disappointing he might purchase put options in order to protect his downside risk. Using hedging techniques enables gold stock traders to smooth out returns in an otherwise volatile market.
Another popular strategy among gold stock traders is to use stop-losses. A stop-loss is a predetermined sell order that you submit to the exchange. For example, if you own shares of Anglo Gold you might put a stop-loss at three dollars below the current price. If the price of the shares falls more than three dollars an automatic sell order is placed in the market. The reason why gold stock traders use stop-loss strategies is to limit losses and insure that they retain a disciplined approach to their trading. One of the things that all gold investors need to prevent are large losses. Many gold stock traders look to limit their losses to a maximum of 10% in any given position. Using a stop-loss strategy ensures that you can manage losses with less stress and more discipline.
The last gold stock trading strategy is to pay attention to investor sentiment. Investor sentiment in gold stocks will range from exuberance to despair. A contrarian is always looking to buy when the majority of traders are selling. Similarly, a gold stock trader looks to lighten up when everyone else is racing to buy up every gold stock. One can monitor the bullish or bearish sentiment using a website like investorsintelligence.com
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