-- Posted Wednesday, 17 April 2013 | | Disqus
Under the current market circumstances where gold and silver have come under heavy historical fire, most of us have incurred losses by going long. There are questions over the continuance bullish trend in gold and silver. The current fall is a big lesson for gold and silver bulls and for the common man in India. The common man in India was of the belief that gold is a safe investment at any price in India. He invested a lot of his savings in gold and silver. Now this belief has been shattered and he will now think twice before investing in gold. Even housewives in India are invested in India in gold using the “pin money”. Some of them are crying while others are investing more. Gold loan companies are expecting an increase in loan defaults and their shares have fallen.
The big question is how do we trade as well as invest in gold and silver under the current market circumstances where the sentiment is hyper negative. Below are some of the ways to trade and invest.
Have Long term support and resistances: Always have long term support and resistances with you irrespective of whether you are a day trader or a long term investor.
Use trailing stop losses: The trading and investing world is moving towards mobilization. The number of trades done from a cellphone is on the rise and the trend is towards mobilzation. Higher mobilization implies an increase intraday volatility and an increase in long term volatility.
Herd mentality: It is not always wise to follow the herd. Use stop losses and keep on booking profits. Most of us have incurred losses last week and this week but trades were profitable just after we bought or sell. We had a specific price target and we incurred losses as gold and silver did not reach our price targets.
Financial markets have a tendency to overshoot and undershoot: The current world central bank policy of ultra loose monetary policy has created asset bubbles. These asset bubbles have the potential to inflate or deflate the value of any underlying financial instrument by fifty percent or more. So the scary overshoot and undershoot whenever happens, erodes our invested capital if we are on the wrong side of investment. We need to protect ourselves from wild swings by determining the amount of risk we wish to take.
Risk appetite: Before making the trade or making an investment we need to ask ourselves what risk we need to make. Just remember that no investment is safe. Even long term investments can be unsafe due to changes in circumstances. The value of risk has to be determined before making an investment.
Keep a track of your investment or do not sleep on your investment: Never sleep over your investment. One should check the value of his/her investment at least every fortnight whether it is stocks, commodities, ETF or mutual funds. If there is any major deviation of amount invested, then look for alternatives.
Some of my experiences as a traders as well as a consultant: My first and simple philosophy in trading as well as investment is that “whenever retail traders buy/sell as if money will made like a toss of a coin, I sell using trailing stop losses”. Whenever there is a huge rush made by retail investors to invest in anywhere, I get cautious and look for opportunity to do the reverse. Me and our esteemed clients have been successful most of the times using this strategy.
Momentum trading or investing is fine but profit expectations have to be reduced and stop losses below key support have to be used.
Bottom fishing never works. There is no limit to rise or to fall. Sometimes bottom fishing results in more losses. For example a lot of us bought gold at $1400 hoping there is not much downside risk but the next day gold prices fell to $1322 and our stop losses were triggered.
Another example: A lot of us were long in MCX gold June futures at Rs.29000-Rs.29500 prices. The key long term support (now the resistance) was at Rs.27700. We had advised clients to use a trailing stop loss of Rs.27700 on all gold buys and to sell if gold prices fell below Rs.27700. This strategy worked to perfection. However this kind of strategy worked because there were big moves. If there is small price movement then one needs to keep trades purely intraday.
Another question which I was asked that I have margin money till Rs.28000 and that I will not have investible funds to trade if prices fall to Rs.28000. My reply would be to exit on any rise to minimize losses and trade only when stability returns. If the risk appetite is low then one should trade only when volatility is less.
Long term investing: If the long term fundamentals are perfect for investing then one should remain invested and not get scared buy massive price moves. I always believe on using fundamentals for long term investing. The foundations of any company, demand – supply equation for commodity and country specific economic fundamentals for bond investments have to be great to attract long term investors. I was always against ETF investing for the long term and will not change my view as ETF’s are just paper. Careful fundamental study has to be done for long term investing.
Conclusion
At the end of the day it is your money. The internet, TV views or grapevine will not share your losses. You need to do whatever it takes to ensure that your investments give you an adequate return to tide over the ever diminishing power of your currency.
Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. Website www.insigniaconsultants.in
-- Posted Wednesday, 17 April 2013 | Digg This Article
| Source: GoldSeek.com
