Sunday, January 10, 2010
Using Gold Stock Volatility To Advantage
Every trader is familiar with the concept of "buy low and sell high," but it is easier said than done at first. When stocks are plunging, psychology is poor and looking at basic technical indicators suggests the trend will continue in that direction. People don't like stocks that are moving down. But in the volatile Gold stock sector, I have found great success in buying the panic spikes down and waiting for the recovery. I don't momentum chase Gold stocks, I buy them on weakness/corrections.
Greed and fear are powerful emotions that make trading hazardous for most people, myself included. People are scared of buying stocks that are getting crushed, because the news is always worst at this point in time and too many novice traders focus on the news coming out at the time of the plunge rather than focusing on the future potential and seeing a stock being sold at a discount to its future potential. Similarly, a rapidly rising stock generates positive news and people fear missing "the big one," so they hop aboard at the highs and lose money on the inevitable subsequent correction.
Volatile sectors like the Gold and silver mining patch particularly benefit from a strategy of waiting for a steep correction to buy. Demonstrated in the charts below are links to previous buying opportunities I pointed out using this principle and what happened after that point in time:
Durban Roodeport Deep Gold/DRDGold (ticker: DROOY) - link to buying opportunity post here:
Agnico Eagle (ticker: AEM) - link to buying opportunity post here:
Kinross Gold (ticker: KGC) - link to buying opportunity post here:
Goldcorp (ticker: GG) - link to buying opportunity post here:
I try to do the same thing with junior miners, which are even more volatile and higher risk. I tend to buy them after a lengthy or steep correction and sell them when they get significantly overbought, then rotate profits into other junior miners. Wash. Rinse. Repeat. It doesn't always work, but when it does, it's sweet. Here's what I sold this past week:
Luna Gold Corp (ticker: LGC.V):
Paramount Gold and Silver Corp (ticker: PZG):
And here's the juniors I'm looking to buy based on the same principle of "bottom feeding":
Apollo Gold (ticker: AGT):
Timberline Resources (ticker: TLR):
Minco Silver (ticker: MSV.TO):
Trading isn't for everyone and some are more suited to a buy and hold mentality. I still have much to learn when trading. I am starting to get pretty good at figuring out when to buy but am not so good at figuring out the best time to sell in order to capture maximum profits. "Letting profits run and cutting losses short" is a time tested adage most traders swear by and something I need to learn to do better. But this is a marathon for me, not a sprint, and every expensive lesson learned can provide potential profit opportunities in the future.
Happy speculating and posting will be light over the next few weeks. Gold, silver and Gold and silver stocks are about to enter the "sweet spot" in my opinion. I remain long and wildly bullish on all things metallic and precious.