Investors who prudently invest in precious metals with modern timing tools for the very long-term make money.
Professionals know this but mom and pop often do not understand that very long-term investing has positive expectancy irrespective of how good you are at investing. On the flip side, short-term trading is a zero sum game; someone wins at the expense of someone else.
Professionals often have a hay day eating mom and pop’s lunch. Let us explore an example with an annotated chart.
The Annotated Chart
The annotated chart is of gold futures. Similar examples abound in ETFs such as gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), junior gold miner ETF (GDXJ) and leveraged precious metal miner ETFs (DUST) and (NUGT).
Please see the chart above.
Mom and pop tend to put their stops right below heavily advertised support levels. The support level of importance in the chart is $1200. As gold approached $1200, professionals knew that mom and pop stops were right under $1200. So they activated their ‘hunt and destroy’ algorithms to take out the stops and make a small fortune in the process.
The chart shows the zone where professionals took out the stops by their own selling. Then professionals started buying to book profits in the zone shown on the chart. To put a cherry on the top of their profits, professionals bought a little bit more after covering their shorts and then drove the price above $1200. As the price went above $1200, mom and pop who have been taught to buy on break of a resistance started buying running gold up a few more dollars. Professionals took advantage of mom and pop to sell into the strength. Please note that once gold fell under $1200, $1200 became the resistance in traditional technical terms.
Shouldn’t Every Trader Become A Billionaire?
Mom and pop traders are mesmerized by charts. These days charts are ubiquitous. It is a lot of fun and easy to draw lines and put indicators on the charts. The end result is that mom and pop pleased with themselves about their ability to draw lines on charts plunge into trading with stars in their eyes. They forget that there are professionals on the other side and trading is a zero sum game.
Ask yourself this question, “If charts and simple indicators work, why doesn’t every trader become a billionaire?”
Step One — How Not To Become A Victim
Simply do not put stops right below widely advertised support levels.
Step Two — How Not To Become A Victim
Use the techniques that hedge funds and billionaires use. One technique is to use stop zones. Another technique is to use stops as a second line of defense. At The Arora Report, we provide an extensive array of such techniques to our subscribers in the form of Trade Management Guidelines. These techniques have played a large part in generating large profits in precious metals in both bull and bear markets at The Arora Report.