Investing in Gold Stocks

Due to the increasing popularity and economic changes, many investors are interested in investing in gold. Gold stocks are publicly-traded companies, similar to any other type of stock that you can buy or sell in the open market, but a gold company focuses on acquiring gold from the earth.  It can be easier to buy gold stocks, than to buy physical gold, however, this market sector is very complex and can be very intimidating to new investors. If you already have a brokerage account, you are already one step ahead to buying stock in the gold arena!

Why Gold Stocks?

Gold is in a bull market at the present time and is ultimately driven by supply and demand. There is currently a growing global demand for gold and a shortage of supply, therefore leading to the bullish market as opposed to a bear market. Because of the shortage, current production of gold becomes more profitable as gold prices increase, thus justifying higher stock prices. The gold reserves still actually in the ground become more profitable and as a result gold production will also increase. Eventually the higher gold prices will slow down the current gold demand and eventually a new and higher gold price will be established because supply and demand have reached equilibrium. What does all of this really mean? Basically it means that both gold and gold stocks are shooting upwards in strong bull markets and are making a fortune for those who have invested in gold. Additionally, analysts believe that the degrading of the U.S. currency by politicians is pushing investors to rely on other means.  Successful investors recognize that by investing in assets, such as gold stocks, that it will provide protection from our currency’s loss of purchasing power.  Gold is much more liquid than other forms of investments and is an investing strategy that may advance your stock portfolio quite nicely.

It is important to note also that since 2001, the gold price has been persistently increasing higher and higher.  This is believed to be a direct result of the central banks no longer selling gold into the open market. Previously they were responsible for selling gold into the open markets to make up for the structural supply deficit between the world demand and the mined supply available.

Basic Gold Investing Concepts

Before you decide that gold stocks is the way to go, be sure that you carefully determine what percentage of your strong portfolio you would like to risk in relation to gold investing.  Portfolio diversification is a must and investing in gold can assist you with that.  You may want to start with a very low percentage until you are more familiar and comfortable in the gold market.  Once you become more familiar you can then increase you percentage of gold-related investments, such as gold stocks.

Continue to research gold stocks and other gold-related investments to see if this is one of your preferred investment options. There is a lot of information available on the internet regarding investment strategies and investments basics. Be sure to do your homework and join an online community of respected fellow gold investors if you are seriously interested in investing in gold stocks.

The major advantage of candlestick signals is that it allows for investors to identify when investor sentiment has turned. This could clearly be illustrated in the Dow over the past few days. A 400-point decline followed by a close near the top end of the trading range. This provides valuable information for the candlestick investor. For those not using candlestick signals, the results of Tuesday's trading, being down 127 points, would not have made a significant impression. However, viewing the trading day as a severe Hammer signal has a completely different connotation to those who understand what the Hammer signal represents.

Add the fact that Wednesday's trading almost reached the same low point as Tuesday's trading before reversing and forming a Bullish Engulfing signal, the day after a Hammer signal, provided the opportunity to participate in some huge price reversal moves. The huge selling on Wednesday had one important factor. It did not go below the low of the previous day. Using the candlestick charts effectively allowed for entering some trades with an extremely low risk, high upside potential entry levels. Why would the candlestick investor have been prepared?

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Keep in mind, the Hammer signal of the previous day represented the possibility of a reversal. This reversal was going to occur at the optimal conditions; in the extremely oversold conditions! The selling of Wednesday took prices almost back to the same low. This now becomes an extremely low risk entry time frame. We are still in the oversold conditions; there were numerous buy signals in individual stocks the previous day. What was the downside risk of buying when the market was once again down almost 400 points? Any buying on Wednesday near the lows could be immediately stopped out if the markets started trading lower than the previous day's lows. Conversely, if the market rallied, it could produce another Hammer signal, Piercing signal, or Bullish Engulfing signal. Additionally, with the lows being so close to each other, it could be considered a tweezer bottom, another bullish indication.

Where is the opportunity to make the biggest profits? Buying at the bottom of the panic selling! The big percent moves to the downside can now become big percent moves to the upside for short term trades. When the fear is gone, and the short covering starts, there is usually a mad dash to get back into positions. The reason we have been recommending that you keep your powder dry is exactly for this reason. The initial price moves from a reversal of an extended trend can capture 20%, 30%, or 40% price moves in a very short time frame. Having the candlestick signals as your visual guide makes taking advantage of buying opportunities much easier to identify.

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These illustrations are not a shoulda, coulda, woulda hindsight analysis. These illustrations are to point out what occurs in investor sentiment at bottoms. The more you become educated on how investors react during specific times during a trend, the better you'll be able to take advantage of opportunities that most investors do not recognize until after the initial 25% or 35% move. This is not new information. This is what the Japanese Rice traders identified as reoccurring situations in investor decision-making. Most investors are happy to make 10% in a stock move over a one-year period. To be able to make three times that amount in three days definitely puts padding into the account.

Chat session tonight at 8 p.m. ET - Rick will be hosting the chat session tonight, giving some insights into some of the very short-term processes he evaluates for taking advantage of reversal situations. Come join us and bring the kids. Click here for instructions.

Option traders - There will be more option material and training being presented on the Candlestick Forum in the next few weeks. We had Bill Johnson on last week in the Thursday night chat session. More option training information will be provided by a number of sources associated with the Candlestick Forum over the next few weeks

Good investing,

The Candlestick Forum Team