gold investment, silver investment

Precious metals investment terms A to Z

Indicator

Imagine such a situation: if you could determine when you buy or sell your assets by watching just two lines, when one line crosses the other line, you buy. When the same line crosses the other line in a different, way you sell.

Eric asks:

Saturday afternoon, Eric and John are in their favorite café after a golf match.

John, the Trader

John, the Trader

(sipping coffee and skimming through a newspaper): Interesting, they write here that the main economic indicators have improved, which really bodes well for my investment.
Eric, the Beginner

Eric, the Beginner

Oh yeah, I’ve heard that indicators are really important in technical analysis.
John, the Trader

John, the Trader

(smiling): That’s correct but you need to distinguish economic indicators from technical analysis indicators.
Read the whole discussion

That will make life on a stock exchange much simpler. If this lines are somehow correct then this leads you to big future profits. So, the million dollar question is: How do you draw these lines? This line is an indicator and there are numerous and vary options to draw this lines in a way that provides you with the highest possible return.

Let us take a look at a sample of “the indicators’ power”.

RSI - Relative Strength Index

The above chart presents SPDR Gold Trust Shares from August 2010 to the beginning of December 2010. We can observe a continuous positive trend since August and a massive fall in the middle of October. However there was an opportunity to avoid huge losses in our capital, this opportunity was a sell signal generated by the RSI indicator. As it can be clearly seen form the chart, following the signal could save your money. For more details concerning this example check our Premium Update from October 15, 2010.

Indicator uses price volatility to recognize patterns in the movements of stocks in order to find optimal moment for buying or selling it often including up and down volume, advance/decline data and other inputs. In other words, a stock indicator detects some repeatable situations on the market and thanks to that is able to predict how a particular stock will behave in the future. As a result of calculations, it generates signals which inform us about a level of overbought or oversold. A level of overbought tells us that the price change of a particular stock indicates that there is a small chance of further increase and encourages us to sell the stock. Analogically, a level of oversold tells us that the price change indicates that there is a small chance of further decrease and encourages us to buy the particular stock.

There is a lot of websites which provide you with the stock indicators. However their calculations are based on the formula which was invented a long time ago and it is adjusted to bring profits on all markets. Using standard version of indicators you will be doing quite well on the various markets. But what if there is some other version which will bring you enormous profits on the gold? Maybe is there some indicator that is especially reliable on the silver market but totally useless on the general stock exchange? Is this indicator efficient in the short term? How can I find modified version of it that brings me huge profits on the sell position? Moreover, having this information still does not guarantee high profits. There is always a need to monitor the whole optimization process, check its results and update it systematically.

Gold Indicator

The indicators are usually designed in a way that allows one to apply them to many markets, including gold, so it is usually the case that the same indicator can be applied to both: stocks and gold. However, just because something can be applied to almost all markets, doesn't mean that it should . When looking for a best gold indicator, one should pay attention to a given indicator's performance on a certain market (here: in case of gold) and check whether the efficiency is high, more or less consistent and that it is present in both: bull markets and bear markets. It's also a good idea to check for the circumstances that might confirm or invalidate a given signal before applying it. For instance, if all historical signals took place on big volume and this time it was accompanied by low volume, this signal may not be as reliable as it seems at the first sight. 

Thanks to its unique properties, it's possible to create indicators that are dedicated to the gold market that would not be applicable for instance to the stock market. In this case, the indicators could be based on more factors than just the price of gold. We created several such indicators and we invite you to check them out in the SP Indicators section.

We hope you enjoyed reading the above definition. If you'd like to learn more about gold and in particular about its most recent price swings and their implications, we invite you to sign up for our gold newsletter. It's free and if you don't like it, you can easily unsubscribe. Sign up today.

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