Gold Trading - When and where is Gold going up and how can we know? Look at Dollar Index and we might have a clue
Gold trading and dollar index - what's the relationship
There is an established relationship between Gold and dollar index.
If you look at the chart above, it is observed that there is an inverse relationship.
If you look at that chart above, while Gold (XAUUSD) is up, Dollar Index DXY is down. However, looking at recent relationship, it seems to weaken and hardly holding true.
What is Dollar Index or DXY?
Dollar Index is a very important index that all forex traders need to know. Dollar Index is also taught in Advance Forex Course.
Let me extract what we wrote about Dollar Index in our forex course:
- The U.S Dollar index consists of a geometric weighted average of a basket of foreign currencies against the dollar
- It is like an index of US dollar against other currencies
- Check dollar index every week to gauge the strength of USD against other major currencies
- Free Chart @ Investing.com (under DX)
- USDX components
- EUR, 57.6%
- JPY, 13.6%
- GBP, 11.9%
- CAD, 9.1%
- SEK, 4.2%
- CHF, 3.6%
- For crosses where USD is second currency (e.g. EURUSD), dollar index is inversely related to it.
- Dollar index is best use to gauge strength or weakness in EURUSD as EUR has the highest weightage.
I wrote about Dollar Index in many occasions in The Alien Room about how to gauge the strength US Dollar against other currencies. Particularly, we can use Dollar Index to gauge whether we could choose USD as a pairing in our trades e.g. to choose GBPUSD vs GBPCAD (between USD or CAD) if we think that generally GBP should move.
These are chronicles of Dollar Index analysis that I wrote telling traders in The Alien Room why we should avoid trading into USD.
16 Aug 2016 Analysis
19 Aug 2016 Analysis
23 Aug 2016 Analysis
Focus on your trade management processes, not just results - how we managed our trades into EU referendum
Get the trade management process right and money will come flowing it. This is something where I think a lot of new traders are not realistic about. Not only a trader needs a winning method, but he or she must be able to manage those trades along the way. In my years of mentoring many traders, I have not seen anyone behaving in the same way using the same method, not to mention during times of extreme volatility.
Having taught the same method, some traders want to brave the storm of EU referendum, while some might not want to. I chose the careful mode before voting result was released.
Here are two trades which I have specifically closed out ahead of EU referendum. However, if I did not choose to do that, then those levels that I wrote will be hit and we would have a handsome win.