Strategy for trading precious metals while working or studying

If you have a full-time job or are studying, fast trading styles like scalping, which requires you to carefully observe a screen for several hours a day, is definitely not right for you.

However, there is another trading style that is designed exactly for situations like these and for people like you. It is called swing trading and is very popular among traders, especially because of its time-saving nature. On top of that, It is also suitable for beginners and, if handled correctly, can also allow for interesting account appreciation. So let's take a look at what swing trading is and how to use it for trading precious metals.

What is a swing strategy?

Swing trading is an approach that focuses on short-term fluctuations in asset price movements. The goal of swing trading is to take advantage of these short-term deviations and profit by entering trades long (speculating on a rise in price) or short (speculating on a fall in price). It is typical of swing trading strategies that traders look for significant price movements (larger than the daily average) and tend to keep their positions open for several days or even weeks.

 

What time frame should you choose?

If you want to trade while studying or working, in a swing style, it is advisable to use the D1/H4/H1 time frames. Why these 3 time frames?

• Daily chart (D1): this chart is used to identify the main trend. From the daily chart, you can determine if the precious metal is in an uptrend, downtrend, or sideways trend. Trades with the highest probability of success are then those that are within the direction of the main trend.
• H4 chart: It is therefore possible to move the stop loss in the direction of the profit, thus locking in part of the profit. It is also possible to use the H4 chart to identify the short-term trend.
• Hourly (H1) chart: This time frame will be used to identify the signal to enter the position.

How to start?

The analysis starts on a higher time frame, i.e. in the case of swing trading on a D1 chart. We will show how to do this on gold.
 

_{Gold on D1 timeframe}

Explanation:

• LH: lower high
• LL: lower low
• EL: equal low
• HH: higher high
• HL: higher low

The principle is that as long as the market is making a lower low and a lower high, it is in a downtrend. If, on the other hand, the market makes a higher high and a higher low, the instrument is in an uptrend. We can connect the highs and lows with a trend line to make the trend more illustrative.

The principle with swing trading is that if the market is bullish, it is more profitable to speculate long. If the market is bearish, then trades are more likely to succeed in the short direction.

Another way to determine the trend direction for swing trading is by using moving averages. In the picture, we have gold on the H4 chart with the moving averages EMA 100 (blue) and SMA 200 (green).

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_{Gold on H4 chart}

The principle is that if the faster EMA 100 is above the slower SMA 200 (point A), then there is an uptrend and it is more profitable to look for trades in the long direction. If the EMA 100 is below the SMA 200 (point B), then we have a downtrend and trades with a higher probability of success will be in the short direction.

• For trades in the long direction, we then look for bounces off support. Supports can be horizontal lines (trade #1), where support was formed by breaking through the previous high at which there was resistance. Breaking through resistance becomes support. Another way to identify a support is the so-called bullish fair value gap (FVG), which is the distance created between the high of the first candle and the low of the third candle (trade #2).
• For trades in the short direction, we follow a similar process except that we look for bounces off of resistances. In addition to bounces from horizontal lines, which are trades 3 and 4, bearish fair value gaps, which determines the distance between the low of the first candle and the high of the third candle, are also taken as resistance. This is the case for trade number 5.

Moving averages can also be used as support and resistance. In particular, the SMA 200 tends to be a strong area from which the price tends to bounce in the direction of the trend.

Once we have identified the area where we would like to enter and the price approaches the area, the question of specifying the entry arises. This is done on the H1 chart, where we can use reversal candle formations or the aforementioned fair value gaps for confirmation.
 

_{Gold on H1 chart - sample long trade}

In this case, we have trading position #1, which we have indicated on the H4 chart. The price approached the support and consolidated there for some time.

We are then looking for a hint on the H1 chart to indicate that the price will bounce back up. In this case, we have a bullish fair value gap at point 1 (see blue rectangle). The trade entry is then at the upper edge of this gap with a stop loss below the low of said consolidation. A bullish engulfing candle can also be seen as an entry signal, which has also formed here. This trade would yield a profit of 4R (where R is the unit of risk taken). If 1R was 1% of the account balance, then the profit would be 4%.

In the next example, we have an example of a short trade position that had the number 3 on the aforementioned H4 chart.
 

_{Gold on H1 chart - sample short trade}

Conclusion

Swing trading is a comfortable style that offers the trader plenty of time. For this reason, it is a strategy that is suitable for the always busy traders or for beginners. If you would like to try to swing trading gold or any other precious metal, you can do so absolutely free of charge in our demo account, which is available for an unlimited period of time.

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