subject: Gold Prices And Forex Trading [print this page] Everyone wants to buy goldEveryone wants to buy gold. Gold is the ultimate global currency. US Dollar used to be pegged to gold before 1973. But with the collapse of the Bretton Woods System that year, US Dollar was unpegged from gold.
Many forex traders don't know this fact that there are a few currencies in the world that show a strong correlation to the gold prices. If the gold prices go up, these currencies appreciate and if the gold prices go down, these currencies depreciate.
One of the currencies that is strongly correlated to the gold prices in the international markets is the Australian Dollar (AUD). Australia is a major producer and exporter of gold in the world. No doubt, AUD shows a strong correlation with the international gold prices. Now, gold is also known as the Anti Dollar.
On the other hand, USD has an inverse relationship with gold prices. Gold prices rise, USD falls in value. This causes the currency pair AUD/USD to appreciate in value when gold prices rise.
How do you follow gold in currency trading? We now know that AUD/USD pair reacts strongly to gold prices. So we will trade AUD/USD based on following gold.
CCI gives a quicker signal. This is good for relatively less volatile pairs like USD/CAD. Whereas RSI gives slower signals, this is ideal for more volatile pairs like AUD/USD. It all depends on how quickly the two indicators react to volatility.
Enter a long trade on AUD/USD if the gold prices are rising and the RSI is crossing back above the 30 line. On the other hand, enter a short trade on AUD/USD pair if the gold prices are declining and the RSI is crossing below the 70 line.
Risk to Reward Ratio is very important for a trader. Never ever trade with a risk to reward ratio of ! In this case, you should set a stop loss of 50 pips and a limit order of 200 pips.
This means a risk to reward ratio of 50/200=1/4=0.25 which is quite good. What this means is that you have a 4 to 1 chance of winning. Good Luck!
