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Mom and Pop Gold Traders' Lunch Eaten By Professionals, How Not To Become a Victim

Commentaries & Views

Investors who prudently invest in precious metals with modern timing tools for the very long-term make money. 

Professionals know this but mom and pop often do not understand that very long-term investing has positive expectancy irrespective of how good you are at investing.  On the flip side, short-term trading is a zero sum game; someone wins at the expense of someone else. 

Professionals often have a hay day eating mom and pop’s lunch.  Let us explore an example with an annotated chart.

The Annotated Chart

The annotated chart is of gold futures.  Similar examples abound in ETFs such as gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), junior gold miner ETF (GDXJ) and leveraged precious metal miner ETFs (DUST) and (NUGT). 

Please click here for an annotated chart.

Mom and pop tend to put their stops right below heavily advertised support levels. The support level of importance in the chart is $1200.  As gold approached $1200, professionals knew that mom and pop stops were right under $1200.  So they activated their ‘hunt and destroy’ algorithms to take out the stops and make a small fortune in the process. 

The chart shows the zone where professionals took out the stops by their own selling.  Then professionals started buying to book profits in the zone shown on the chart.  To put a cherry on the top of their profits, professionals bought a little bit more after covering their shorts and then drove the price above $1200.  As the price went above $1200, mom and pop who have been taught to buy on break of a resistance started buying running gold up a few more dollars.  Professionals took advantage of mom and pop to sell into the strength.  Please note that once gold fell under $1200, $1200 became the resistance in traditional technical terms. 

Shouldn’t Every Trader Become A Billionaire?

Mom and pop traders are mesmerized by charts.  These days charts are ubiquitous. It is a lot of fun and easy to draw lines and put indicators on the charts.  The end result is that mom and pop pleased with themselves about their ability to draw lines on charts plunge into trading with stars in their eyes.  They forget that there are professionals on the other side and trading is a zero sum game. 

Ask yourself this question, “If charts and simple indicators work, why doesn’t every trader become a billionaire?” 

Step One -- How Not To Become A Victim

Simply do not put stops right below widely advertised support levels. 

Step Two -- How Not To Become A Victim

Use the techniques that hedge funds and billionaires use.  One technique is to use stop zones. Another technique is to use stops as a second line of defense.  At The Arora Report, we provide an extensive array of such techniques to our subscribers in the form of Trade Management Guidelines.  These techniques have played a large part in generating large profits in precious metals in both bull and bear markets at The Arora Report.

Gold And Silver Ratings

The Arora Report precious metal ratings are widely used by bullion dealers, jewelers and investors across the globe.

The first cut of ratings on gold and silver at The Arora Report is generated by complex algorithms that automatically change with market conditions. Then human judgement is added before publication.  Inputs to our algorithms include relationship between currencies, interest rates, sentiment, money supply, global geopolitical picture, global GDP growth, inflation in key countries, leading indicators of inflation, risk appetite, mine production and jeweler demand , smart money actions, speculator actions, and our proprietary technical indicators.

Here are our current ratings.

  • Neutral in the very, very short-term ?  The market is positioned to sell gold and silver after four critical events including Fed.  Markets often make fools of the greatest number of people.  In practical terms, those who are positioning now for gold to go down can get squeezed and as a result of short covering gold and silver have the potential to scream higher. If gold does not go down on rate hike or there is no rate hike, aggressive traders may consider buying gold for a short-term trade using ETF GLD and or ETF SLV or equivalent in your country.  Those who want to juice up the trade with leverage and are   not comfortable with futures may consider triple leveraged miner ETF NUGT.  CAUTION: RISK IS VERY HIGH IN ANY SUCH TRADE.

  • Neutral in the very short-term.

  • Neutral in the short-term.

  • Neutral in the medium-term.

  • Mild Negative in the long-term.

  • Positive in the very long-term.

These ratings are reviewed daily and changed frequently to help both long-term investors and short-term traders.  For definitions of time frames, please click here.

Full Disclosure: Subscribers to The Arora Report are provided precise buy zones and sell zones as appropriate.  Further, subscribers to The Arora Report may undertake short-term trading positions in addition to the very long-term generational opportunities.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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