When you trade do you use your gut? Do you seek advice and follow it? Do you buy whatever they are talking about on TV? Or do you have a process? A system? They say that the most important criteria to success is having a process and sticking to it. Some are lengthy and complicated. Some are simple and there millions in between. I have detailed my process in the book I wrote a couple of years ago, Trading Options. It is not complex and only takes a few hours every week once you get going. And it can be used for many different markets.
But there are other simpler systems that can work just fine when applied to the proper market. Two of them are great ways to look at trading gold right now as it moves sideways in a channel. Take a look at the chart below. On the top is a momentum indicator, RSI. This can be used for the first trading system. It has two simple rules for traders that can only buy long positions. Buy when the RSI hits below 35 and sell when it reaches 70.
The simple system would have produced gains of 9 and 7 points from the March and May lows, and you would be long gold now holding almost a 5 point gain. You can complicate this (like any system) by adding shorts. If instead of selling you added a short position that you closed when the RSI hit below 35.
The second is similar but looks at the MACD at the bottom. In this system you sell when the MACD (blue line) crosses down through the signal line (yellow line) and buy when the MACD crosses up through the signal line. This system gives similar but slightly lower results to the first one, with a little more confidence as the MACD system triggers when confirmation of a reversal has already happened.
These two systems work very well for stocks or ETFs that are moving in a broad channel where you wish to trade the channel. They can be used for a flat, rising or falling channel. Where would you look to deploy them?
DISCLAIMER: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.