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VIDEOHow to Trade Volatility of Gold, Silver
Understanding the key differences between the risk and volatility levels of both metals will help you choose low-risk trade setups.
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Let’s jump into to comparing gold and silver as trading instruments. I get the same questions from new traders all the time:
1. Why don’t you give Silver (SLV) trading analysis/signals?
2. Why don’t you trade silver?
My answer to the questions are simple and the chart below displays my view.
The GLD signals I provide work with silver, so silver can be traded when I have gold long or short trade. This is the reason I don’t provide much silver analysis; it’s essentially duplicate information.
The chart below shows how gold and silver trade together when it comes to rallies and sell-offs. But notice how volatile silver is while gold had a nice slow and steady trend upward. Gold’s low volatility trending characteristics is what I love about it. Silver, on the other hand, is all over the place, making it easy to have protective stops triggered before the majority of the trend is over. The silver charts almost always look terrible (tough to read for a direction). I really don’t like getting shaken out of a winning trade.
The pink circles show a quick short trade I did this week catching a quick 1% drop. The short trade was for FuturesTradingSignals where we capture one- to three-day extreme market sentiment shifts.
GLD -- Gold ETF Trading Chart
The chart below shows several points as to why gold/silver were screaming "buy me" on Tuesday afternoon. The two things that carry 90% of the strength in my opinion are the candlestick pattern (bullish engulfing) and the volume surge. Those two things when seen on virtually any time frame are a good indication to go long for one to three candlesticks minimum.
Gold Versus Silver – 5-Minute 3-Day Chart
This chart clearly shows the power of trading a more volatile commodity with silver being the one. This week’s buy signal in gold is dwarfed by the performance of silver. Silver has always shined more in my opinion, but it's tougher than it looks to trade because of the wild whipsaw action it makes on a regular basis.
Gold and Silver Trading Conclusion
In short, gold is the safe haven when it comes to actively trading. I do trade silver here and there but the size of my position is much smaller because of the difficulty level and volatility associated with it.
Chris Vermeulen offers more content at his site, TheGoldAndOilGuy.com.
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