I don't think I have much more stomach for volatility in gold and silver prices. I haven't made much money in a while.
Volatility surges in the precious metals market can catch many investors and experienced traders by surprise. When the market is going down sharply, we tend to receive e-mails from worried subscribers who fret if the decline will ever stop and if it is possible for precious metals to rebound to previous levels, etc.
We thought it would be a good idea to give you information that can help during such times. After all, stress has impact on health, which is at least, if not more important than money. In short, there are two main things to keep in mind:
- Did the reasons for the investment change?
- Is the position size justified?
The first point is about focusing on the big picture and recalling what made you open a given position in the first place. Are these factors still in place? Did anything invalidate them? The price move may or may not invalidate a bullish or bearish picture, depending on the situation. For instance, if you were trying to invest for the long term, the odds are that a temporary downswing didn't change the long-term picture at all. If you thought higher prices are likely based on some B factor, and even though prices are lower the B factor is still in place (or even increases somehow), then the situation naturally stays bullish. Now, if price move had invalidated this B factor, the situation would likely cease to be bullish. So – again – the key question is, has anything changed? If yes, close the position. If not – don't. Either way, focus on the facts and factors that made you open your current position, not on the price move itself.
The second point means that you should only open a speculative position when you can afford to lose it. Remembering this rule should prevent you from being overly emotional over a given trade even if you don't implement the previous rule. With speculative trades, there's always the next train – even if you lose once, it doesn't really matter, because if your approach is right, and on average you make trades when the risk/reward ratio is favorable, then you will make money in the long run. If there is one thing beginning investors should focus on, it is learning to choose the right position size.
While the above is not related to any particular trade, nor to precious metals market, we believe that bringing this up should prove to be profitable not only in terms of financial gains, but also in terms of the stress levels associated with trading, just as important in our view.
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