Trading Gold and Silver's Volatility

Gold is the safe haven when it comes to active trading.
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Understanding the key differences between both gold and silver's risk/volatility levels plays a large part in how I choose a low-risk trade setup. Those of you who follow me already know the

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exchange-traded fund is my favorite trading vehicle as it provides me with low-risk trading setups along with a very high win rate.

OK, let's jump into to comparing gold and silver as trading instruments. I get the same questions from new traders all the time and I think these two questions will help clear them up.

The questions are:

  • 1. Why don't you give silver (iShares Silver Trust (SLV) - Get Report) trading analysis/signals?
  • 2. Why don't you trade silver?

My answer to the questions are simple and the charts display my view.

The gold ETF signals I provide work with silver, so you can just trade silver when I have a gold long or short trade. This is the reason I don't provide much silver analysis because it's duplicate info.

The chart shows how gold and silver trade together when it comes to rallies and selloffs. But notice how volatile silver is while gold had a nice slow and steady trend upwards.

Gold's low volatility trending characteristics are what I love about it. Silver, on the other hand, is all over the place making it easy to have protective stops triggered before the majority of the trend is over. The silver charts almost always look terrible; they are tough to read for a direction. I really don't like getting shaken out of a winning trade.

The pink circles show a quick short trade I did this week catching a quick 1% drop. The short trade was for FuturesTradingSignals in which I capture one to three-day extreme market sentiment shifts.

The next chart shows several points as to why gold/silver was screaming "buy me" on Tuesday afternoon.

The two things that carry 90% of the strength in my opinion are the candlestick pattern (bullish engulfing) and the volume surge. Those two things when seen on virtually any time frame are a good indication to go long for one to three candlesticks minimum.

The gold vs. silver chart clearly shows the power of trading a more volatile commodity with silver being the one.

This week's buy signal in gold is dwarfed by the performance of silver. Silver has always shined more in my opinion, but when it comes to trading it's tougher than it looks because of the wild whipsaw action it makes on a regular basis.

Gold is the safe haven when it comes to actively trading. I do trade silver here and there but the size of my position is much smaller because of the difficulty level and volatility associated with it. I will note that I do trade gold and silver futures at times but for this report I focused on ETFs.

Chris Vermeulen is founder of the popular trading sites www.thegoldandoilguy.com and www.ActiveTradingPartners.com. There he shares his highly successful, low-risk trading method. Since 2001, Chris has been a leader in teaching others to skillfully trade in gold, silver, oil and stocks in both bull and bear markets.