The stochastic indicator is known as the overbought and oversold determiner. It is one of the most popular indicators used in the trading business. Thousands of traders in Hong Kong are using the stochastic indicators to find a profitable trade setup. But finding the profitable trade setup is not as easy as the majority of the retail investors are losing money since they don’t have the skills to deal with the complicated nature of the market.
In this article, we are going to discuss how to use the stochastic indicators to trade the gold market like a pro trader. Gold trading might seem easy but in reality, it is much harder than you imagine. However, with the help of simple stochastic indicators, you can boost up the profit and make some serious profit at gold trading.
Analyzing the U.S dollar index
We all know gold is valued in the U.S dollar. So, it is important for us to analyze the U. S dollar index in the higher time frame. When the U.S dollar index falls in the global market, the price gold rallies. And when it gains significant strength, it drops to a great extent. You need to find the condition of the U.S dollar index by using the stochastic indicator. The value of the stochastic indicator will be around 80 when the U.S dollar index is trading in the overbought region. On the other hand, it will trade near the 20 levels when the price is testing the support level. A weak U.S dollar index suggests we look for a long trade setup in gold. A strong U.S dollar index encourages us to look for the short trade setups in gold.
Finding the support and resistance
After assessing the price U.S dollar index it’s time to find the critical support and resistance level in the gold price. For that, you can use the professional platform designated by the elite brokers. Feel free to learn more about Saxo and you will feel more confident with your trading approach. Once you find the support and resistance level, you should analyze the price data with the U.S dollar index. If things seem to be working fine, you have to analyze the stochastic reading in the daily chart.
If the price of gold is testing a critical support level, the value of the stochastic must stay near the 20 regions. If not, you should not take the trade. On the other hand, when the price is testing 80 levels, you need to see a retest of the critical resistance. Consider the stochastic as the digital filter and you will be able to make a profit most of the time. Take the reading from the higher time frame only.
Impact of the economic news
The economic news is going to have a massive impact on the price of gold. Those who are ignoring the economic news while trading the gold has a lot to learn about this market. Things might seem easy but if you ignore the news, you will not be able to secure the big movements from the market. Learning about the major news is not all that tough. With some basic knowledge of the critical support and resistance and the blending of the news data, you can make significant progress from this market.
Taking the losses
Being a gold trader, you should never think you won’t lose money. Losing is just a part of this trading business and there is nothing you can do to avoid the loss. Follow the standard safety protocol and accept the loss. The maximum risk you should take per trade should never exceed 2% of the account balance. Once you become good at analyzing the critical market dynamics, you will see the dramatic change in your trading method. Stick to the long term goals and trade with discipline.