Today’s global economic crisis will offer lots of great reasons for ordinary people to invest in precious metals like gold. Investing in gold is among the smartest ways of securing your money from the negative effects of an economic crisis. Buying gold for keeps will give you an edge against inflation that is often the result of currency devaluation. But despite the many benefits of gold trading, most new traders get their hands burned because of some avoidable pitfalls.
Like any other commodity, gold can also experience price volatility, which can be quite confusing if an investor is looking to make a decision. Although using the services of an expert gold trading company can be your best solution to these problems, it is still crucial for you to learn the common mistakes associated with gold trading so that you can avoid them.
6 Common Gold Trading Mistakes
1. Not having a clear trading strategy
Most new traders begin trading without having a clear, organized trading strategy. They usually invest based on how they feel about an asset and on the pieces of advice they received from other traders. As such, their gold trading processes become quite random.
By using the best gold trading strategy, you can create a more systematic approach to trading gold, thus eliminating guesswork and emotions to create a smart decision.
2. Not having a trading diary
When you are trading, you are not just gaining money. There are also instances wherein you may lose some money. To improve your trading, you must account for what actions have caused you to win, as well as those that caused a loss.
You need to keep a trading diary. For each trade you make, take note of the instruments you used and how you have interpreted the market. After some time, go back to your trading diary and identify common patterns so you will know which different methods worked well and which ones did not. This will show you the connections that you may have missed in the blur of your memories. As such, a trading diary is a very vital ingredient to the success of traders, and no new trader must approach the market without having it.
3. Purchasing too much gold
Most people think that gold is the magic potion for their problems. This mentality then prompts them to purchase plenty of gold.
Pros emphasize that there is always a right time and place for gold trading. Moreover, gold does not generate cash flow or fetch dividends. Avoid emptying your bank account on purchasing gold. Pros further recommend spending no more than 10% of your cash on gold.
4. Everyone else is buying gold, so you should follow suit
Although it is true that investing in gold is a smart strategy during economic recessions, this becomes a risky venture if everyone is getting into it. If everyone is buying gold, the demand increases, and so does its price. Buying precious metals when there is a general rush for it, will eliminate your chances of making huge profits.
5. Buying from an erroneous source
When buying gold, keep your guard up since there are plenty of dodgy sellers in the market who will try to take advantage of those who don’t fully understand the trade. Some sellers add a hefty commission, so if you are not careful, you will end up purchasing gold at an unnecessarily high price. It is crucial that you compare prices among different gold sellers prior to making a purchase.
Furthermore, some sellers put up impure gold as 100% pure or fake gold as original. If you deal with these sellers, you will only lose your hard-earned money. So to avoid falling into their trap, take some time to learn as well as understand how to differentiate fake and impure gold from original and pure forms.
6. Unrealistic expectations
Most people engage in gold trading because they have high hopes of hitting it big. But often, they are disappointed since gold rarely brings in profits. So don’t consider investing in gold if you want a get-rich-quick investment because this precious metal often provides a long-term proposition. Success can only be measured over many years, not weeks or months.
Like any other forms of investment, trading in gold has its fair share of risks. Emotional impulse-driven decisions, lack of experience, and too little documentation can make people rush towards investing in gold. Even good traders fail, but avoiding these common gold trading mistakes will significantly boost your chances of becoming successful in this trading industry.