How To Use Gold Prices In Forex Trading?
Everyone wants to buy gold. Gold is the ultimate global currency. US Dollar used to be pegged to gold before 1973. But with the collapse of the Bretton Woods System that year, US Dollar was unpegged from gold. It became a freely floating currency.
In the present financial crisis with the global economy in recession, many investors are trying to take refuge in gold as the ultimate safe haven of their wealth from financial turmoil.
Australia is a major exporter of gold. UAD/USD is a currency pair that has got correlation with gold prices. As the US Dollar gains value, gold usually loses value. So when gold prices are rising, we can execute long trades on AUD/USD.
On the other hand, USD has an inverse relationship with gold prices. Gold prices rise, USD falls in value. This causes the currency pair AUD/USD to appreciate in value when gold prices rise.
How do you follow gold in currency trading? We now know that AUD/USD pair reacts strongly to gold prices. So we will trade AUD/USD based on following gold.
CCI gives a quicker signal. This is good for relatively less volatile pairs like USD/CAD. Whereas RSI gives slower signals, this is ideal for more volatile pairs like AUD/USD. It all depends on how quickly the two indicators react to volatility.
Enter a long trade on AUD/USD if the gold prices are rising and the RSI is crossing back above the 30 line. On the other hand, enter a short trade on AUD/USD pair if the gold prices are declining and the RSI is crossing below the 70 line.
Risk to Reward Ratio is very important for a trader. Never ever trade with a risk to reward ratio of 1/2. In this case, you should set a stop loss of 50 pips and a limit order of 200 pips.
50 pips stop loss means a $500 loss if the trade does not go in your favor. It is not uncommon to have a trade go against you only to find yourself right back in trade that goes your way.
Article Source: FxTradingStock.com
About the Author
Mr. Ahmad Hassam has done Masters from Harvard University. Learn this powerful Fibonacci Retracement Method FREE that pulls 500+ pips per trade. Get these Forex Scalping Cheatsheets FREE!
by: Ahmad Hassam
Total views: 27
Word Count: 364
Date: Sun, 3 Oct 2010
Publish/Share this article
To use this article on your site click here to get the HTML code
Rating: Not yet rated
Login to vote
Related Articles
Tips On How To Profit In Virtual Stock TradingLet's Choose A Forex Broker.
Some Tips On How To Forex Trade Online To Know
Stay Away From Requotes In Forex.
Helpful tips for Finding the right Forex Trading Program
Forex Currency Trading Software program -- Pick the Proper 1!
Forex Trading Strategies - What To Do When You Loose
Currency exchange Robot Trading Systems - Get the Full Benefit!
