News cycles can create fertile grounds for profitable trading in the forex market and almost all other markets. The precious metal gold is no exception. You can use news cycles for trading gold and gain significant profits.
During the release of news events, price volatility experiences an uptick and in the resultant volatility, you can execute profitable trades. Of course news releases can be a double-edged sword in the financial markets. This is because while volatility can create good possibilities for profitability, it can also be quite challenging and risky.
As such, in order to be able to profit from trading gold on news, you need to have the best strategy.
What Factors Drive the Price of Gold?
In order to be able to develop the best strategy for trading gold on news, you first need to understand the factors behind the price movements of gold. So let’s see what they are.
The price of gold is mostly driven by mostly fundamental and external market factors. These factors include important economic factors, such as GDP, Inflation, Employment, Trade deficit, Consumer spending, etc.
Of course the most significant economic factors have a more serious impact on the price of gold. When these economic factors are not so strong, then the people and individuals in the economy would normally turn to other more reliable assets such as gold and this would in turn increase the price of gold. The opposite is just as true.
Another notable factor that drives the price of gold are interest rates. These rates which are set by the central bank of any economy will define the rate of interest on the loans that the central bank gives out to other commercial banks and then trickled down to end consumers in that community.
Understanding the factors that drive the price of gold is significantly important in being able to trade gold in the best way. Because prior to the release of the news, you might be able to pick on the overall direction of the gold prices. Then you can predict that the preexisting trajectory of gold prices will only be increased by the release of the news.
Implementing Technical Analysis
The next important step in developing the best approach to trading gold on news is to implement technical analysis. This form of price analysis can go a long way in confirming the information that you obtain from the news.
As such you need to implement technical analysis to find important data relevant to the price of gold. For instance, you must be able to pinpoint areas of resistance and support. This is important because you need to know the upper and lower threshold of prices so you know how much to push in either direction.
And as always make sure to use more than indicators in order to confirm the information that you have obtained through analysis. This is important because using one indicator can lead to tunnel vision in your price analysis process. Applying more than one indicator can confirm the information that you have already obtained.
Never Overlook Risk Management
Another significantly important aspect of profitable gold trading on news is to employ prop risk management processes. There are certain steps that you ought to take in order to make sure that your assets are safe and not at risk of unnecessary loss.
For instance, you ought to use stop losses to make sure that if your position goes into loss, it does not run out of control. Using a stop loss puts a cap on the total amount of loss that any given position can sustain.
Just as important is the matter of position sizing. This phenomenon is related to calculating the precise and exact right size of each position before entering them. In this way, the size of each position is well calculated to make sure that it is not exposed to unnecessary risks and threats.
Related Term: What is the best time to trade gold?
Trading Gold (XAUUSD) on News
Finally, when it comes to actually trading the news, there are certain approaches that you can take. For instance, you can begin an opening position prior to the release of the news when the market is going through uncertainty and volatility before the news cycle.
The second approach would be to trade during the release of news. This is when new trends and future trajectories are being impacted by the release of the news. It might be a little too risky, as trends and trajectories can change at any point.
The third and last approach would be to trade XAUUSD on the news after the release of the news. When a news cycle ends, the new trend that has formed due to the release of that particular news has fully taken form. In this way, you will already know whether to follow the trend and trade in the same direction or go against it and hope for a reversal.
By considering all the factors mentioned in this article, you have a good chance of developing perhaps the best way to trade gold on news.
