Have a plan – think through your gold investment.
Before you participate in any kind of investment, you should have a master plan that is prepared and understood before entering into any trade. Take the time to perform due diligence having a coherent outline will help you avoid many of the common pitfalls of trading.
Every trading plan must include the following points:
- Suitable Trading Medium – Different gold markets have different advantages and disadvantages. Know them both and make sure you select an investment that suits your comfort zone for risk exposure. Gold stocks don’t always mirror the physical gold market and vice versa. Be a student of your investment. Study it, read up on it, and get comfortable with it. Make sure you enter that market with a sufficient understanding of how it works.
- Defined entry level – Have clear technical or fundamental reasoning for your buy or sell price. Wait for it and avoid jumping in just to be part of the melee.
- Clear risk management structure – Prepare precise exit points for when the market moves against you. Know what your risk tolerance level is, and be prepared to pull the plug if the trade doesn’t go your way. Smart money should also have specific exit points where you can scale out when the trade moves in your favor. Having multiple scale out points can work to cover costs, preserve gains, and still leave something on the table for more potential profits.
- Targeted profit level – Include a price point to close the investment out for a profit. This is important to avoid falling into a trap where gains are reversed for sitting on a trade too long.
When you finish your plan, ask yourself:
- Does the plan make sense?
- Does the trade make sense?
- Does the trade fit your plan?
For some readers that may seem frivolous, but you would be surprised as to how many trades, even those taken by professional traders, have not been thought out in advance. Right now your head is clear, and you can approach the market with a neutral attitude. This is in contrast to hemming and hawing about what to do once the market moves after the position has been established.