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Trading Volatility, Ballasted by Gold

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Being very overweight in bullion, I'm now looking to raise a sizeable dollar position this year. I do not really see the dollar as a hedge against bullion, or necessarily inversely correlated, but more as a currency that can be owned in its own right alongside gold and silver. My strategy, in a macro-deflation, will be to stay liquid in the strongest currencies; gold, silver and dollars.

 

The current environment has been volatile and looks to remain so for some time to come. I will look to take advantage of this volatility by low frequency currency trading. I have chosen dollar/ silver to trade as they are a "contrary" pair and move against each other well. One is the reserve currency and represents safety, the other a proxy for commodities and represents risk. As the market swings between safety and risk this should be reflected well in these currencies. I have also chosen this pair as I will feel comfortable agressively trading them [though infrequently trading on the big macro moves] as I see both currencies performing well in the long term aggregate; they are both currencies you would do well to own in an asset/credit/debt deflation.

 

I'll use BV [no gearing] to trade. They charge 0.8% on transactions which I consider reasonable. The storage costs of silver is also very reasonable... but then I imagine I'll spend half the time in US dollars as I will be very much a dollar bull on BV [while a gold bull on GM]. There is a possibility that the dollar and silver might both track sideways together... though in a very volatile channel. It is this channel I will be looking to trade. Silver I see as more speculative than gold and may look to take profits by purchasing further gold.

 

A couple of trading points have stuck with me from the Jesse Livermore book; to stake a position and sit on it for a good while.... and to make sure you stake a large position when you do so.

 

 

 

silverlong-1.gif

 

 

Exetersinversepyramid.jpg

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Previous dip suggests a bottom of 15.50.

 

preeeevious.gif

 

 

 

Depending on the long term trend holding here, will start to buy. I am mindful of the "big one", a la Hoye, but think it could be delayed for a while yet. If the markets recover, and we get another push up, my target will be around 20/22 dollars.

 

target.gif

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Hey RH,

 

Good on you for doing this. Seeing separate trading diary helps to separate people's objectives and styles, which is useful. I'm looking forward to reading more as you make trades.

 

Wanderer

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Hey RH,

 

Good on you for doing this. Seeing separate trading diary helps to separate people's objectives and styles, which is useful. I'm looking forward to reading more as you make trades.

 

Wanderer

Thanks. I'm looking to pile in to silver [with my trading account] on this down leg. A factor I will keep my eye on is the dollar. When the dollar corrects/ consolidates from this move up, I think we could see another decent move up in silver. I'm going to denominate profits in dollars, and keep track of trades, profits, and losses in percentages.

 

 

dollarsilve.gif

 

What I find interesting about the above chart is the short lag between the turn in the dollar and then the turn in silver.

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Thanks. I'm looking to pile in to silver [with my trading account] on this down leg. A factor I will keep my eye on is the dollar. When the dollar corrects/ consolidates from this move up, I think we could see another decent move up in silver. I'm going to denominate profits in dollars, and keep track of trades, profits, and losses in percentages.

 

 

dollarsilve.gif

 

What I find interesting about the above chart is the short lag between the turn in the dollar and then the turn in silver.

 

Out of interest are you waiting for your chart to turn in both directions OR have you a set entry price that you will buy at?

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Out of interest are you waiting for your chart to turn in both directions OR have you a set entry price that you will buy at?

The main factor before I buy will be a convincing turn in the dollar. I think this will provide the discipline to wait as I am at heart very bullish on bullion, more so gold, and have the tendency to buy too early.

 

With a good core holding put aside [both gold and silver], I am now looking to strictly trade the volatility between silver and the dollar. I suspect I will have to wear my dollar bull hat more tightly to do so more effectively. If both the dollar and silver are in a bull market, and they move inversely - given the transitory mood of the market - this could be an excellent op for trading.

 

If the long term trend in silver holds [at around $16... 15.50], and we see the dollar turn, I will most probably be starting to buy in 2 or 3 weeks.

 

The dollar looks likely to break through 80 shortly. If the previous push up is anything to go by, it could go to near 81 before consolidating.

 

dol.gif

 

 

The aussie is well correlated with silver and is another cross I will keep my eyes on.

 

aussiesilver.gif

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sl.gif

 

If silver carries on up here, will sit on dollars and wait for the big one should it come.

 

Not convinced this move down has run out of legs yet [the dollar still looks to be in an upleg]. Would consider buying if it dips down below 16.

 

 

dl.gif

 

 

 

Three reasons I am not buying here:

 

1] I already have a massive [percentage wise] position in bullion [buy and hold].

 

2] I think the dollar will continue to strengthen against other currencies.

 

3] Gold still looks to be in a consolidating trend.

 

gold-2.gif

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longgold-2.gif

 

Long term view on gold. 2010 looks to be mostly a year of consolidation. If the past pattern is anything to go by, 2011 could see gold to near 1400 [980 + 35%].

 

If I manage to make some profits trading silver and the dollar, I will look to skim of some and buy gold [on the dips, in dollars] which I consider my core currency.

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silverdollllar.gif

 

Dollar back on track. If it goes through 80 here, silver should go well below 16.00. I will think about starting to buy on a turn down in the dollar. It will be very interesting to see if the long term trend in silver holds.

 

longdollarsilver.gif

 

I suspect on a decent correction in the dollar, we'll see another leg up in silver. Will look to trade this.

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Yup all looks a bit bearish overall.

 

Hoping for a small last uptick in stick markets so I can add some SDS. Contemplating whether to turn my gold over for USD again, though think I might just sit on my stash and wait to add more bullion...and then silver when G:S hits 100... ;)

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Yup all looks a bit bearish overall.

 

Hoping for a small last uptick in stick markets so I can add some SDS. Contemplating whether to turn my gold over for USD again, though think I might just sit on my stash and wait to add more bullion...and then silver when G:S hits 100... ;)

Yes, I'm not bothering to lighten up on any gold... it could continue to consolidate a little but will remain quite solid in the greater scheme of things. Silver is the worry... if the dollar carries on strenthening it could get pummeled. I lightened up a little on silver in my "investing" account [for dollars] but have also kept a good holding in silver... as I feel that would then allow me to agressively trade silver/ dollar in my trading account [in dollars at the mo]. I hope to only buy when there is a decisive correction in the dollar.

 

G:S 100? Was just yesterday when it was nipping at 59... I was all set to swap at 55. Now must be nearing 70 odd. <_<

You might be right, and we see 100 before 50... but I still don't think I'd swap my gold for it. -_-

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Started to buy here at 15.28. I've decided to buy in in three tiers; so now have a third in silver [not a lot of money as am still in the process of funding BV... and more just to get a feel for the BV system]. Maybe a bit early, and maybe reflecting a past habit of being overly bullish on silver. Needless to say, will be looking for bottom dollar prices for further purchases.... and a turn in the dollar index.

 

Wouldn't be surprised to see the dollar start to consolidate at 80/81 if the past pattern is anything to go by.

 

dollarcorrection.gif

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On the other hand, and looking at the longer term, here is a very scary chart for silver. If gold consolidates to its long term trendline [to 1000] then silver could go a few dollars lower. It depends on how quickly it consolidates.....

 

It also hinges on the dollar here, and whether the market can find a floor. If the dollar corrects, silver should turn up. If the dollar continues to strengthen and the market breaks again.... silver could take another beating. That said, silver looks to be the best thing in town to pick up on dollar weakness and market mood swings.

 

I believe this chart shows gold strengthening against the dollar, whereas silver might just remain volatile. In this scenario, gold is the one to accumulate, and silver is the one for trading against the dollar.

 

 

 

scarychart.gif

 

 

ratio-2.png

 

 

Neither does this bode well for the ratio. It looks to be swinging back to 80... perhaps the trading channel will stay within 60 and 80... or maybe even 90.

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Started to buy here at 15.28. I've decided to buy in in three tiers; so now have a third in silver [not a lot of money as am still in the process of funding BV... and more just to get a feel for the BV system]. Maybe a bit early, and maybe reflecting a past habit of being overly bullish on silver. Needless to say, will be looking for bottom dollar prices for further purchases.... and a turn in the dollar index.

 

Wouldn't be surprised to see the dollar start to consolidate at 80/81 if the past pattern is anything to go by.

 

dollarcorrection.gif

 

Im thinking DXY tests 85. I going to hold on (with white knuckles) maybe until then before getting on the silver beast

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Im thinking DXY tests 85. I going to hold on (with white knuckles) maybe until then before getting on the silver beast

:lol:

 

As for 85, yeah, I think the trend is towards that for sure. Could be a couple of forks in the road before it gets there but. I'm quite happy to wait a while also.... as it will take a couple of weeks to get some serious funds [dollars of course] to BV.

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monday.gif

 

When the dollar consolidates, there should be a nice bounce in silver. I won't be buying until I see the dollar retrace at least 0.5.

 

Looks like the DXY could be approaching a "third of a third" move coninciding with stocks. This week should let us know if these patterns work.

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Looks like the DXY could be approaching a "third of a third" move coninciding with stocks. This week should let us know if these patterns work.

The index has turned down a little, and may consolidate over the next few weeks... or may not, and just continue to strengthen here. I've decided I can not be bothered chasing a small bounce in silver [i think the medium term/ first half of year is down]... better to wait it out in dollars [and further accumulate]. This decision involves moving from short term swing trading to long term swing trading [which suits BV anyway], and accordingly I'll post a lot less here. I think it also reflects that I am now more bullish on the dollar than I am on silver at the moment. I think silver should only be bought at the lowest possible prices.... especially when buying in dollars. I see myself swinging between being bullish on silver, then being bullish on the dollar in the forseeable future.

 

I also already have a large position in silver [in my "buy and hold" account... I was hoping to swap for gold at 55, but the ratio snapped back at 59] so this is a further incentive not to buy silver here.

 

If the dollar continues to strengthen and bullion prices weaken, I guess I'll be faced with the choice of whether to buy gold and silver at some point. I think these two are very different. Most probably I'll buy both; gold in my "buy and hold" account, and then silver in my trading account.

 

I'll also consider this dollar trading account as a hedge against a core holding of bullion.

 

 

ls.gif

 

green line is the broken long term trend of silver. This has to be a horrible chart for a silver bug.

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OK, strategy remains the same, but tactics have changed. I'm looking now to find a very volatile gold [possibly silver] stock to trade. I'm thinking of something that is not top tier, an intermediate or junior stock which is well known and liquid. I'll look to take the opposite side of the trade to the "fundametalists", and trade the volatility.

 

Any ideas anyone? Of the top of my head, I thought of Silver Wheaton, or Minefinders.

 

Also, which online brokerage site would people recommend? I'm looking for something that can be easily setup. I'm thinking Interactive Brokers... they constantly advertise how much money CBs are "printing". :lol:

 

Thanks in advance.

 

 

Edit, I'll still swap silver for dollars, but only very infrequently when silver is at the bottom, and then spiking again.

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Royal Gold for a Gold play akin to Silver Wheaton? (RGLD)

That's an idea. Actually, having had a look at some stocks on stockcharts I noticed they are quite a bit less volatile than silver itself. I'm thinking maybe a double long silver ETF would be the way to go. Once again, I'd look to buy at bottom prices and look to sell at a top. This could involve a $10- $20 [silver ounce price] channel if the idea of my OP is right.

 

Double Silver ETFs (2X Leveraged)

 

ProShares Ultra Silver ETF - AGQ

ProShares UltraShort Silver ETF - ZSL

 

Check out the volatility on AGQ; http://stockcharts.com/h-sc/ui?s=agq

 

Updated to the weekly chart looks even better.

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Be careful leveraged ETFs because of the well-document 'decay' effect... Whilst SLW is less volatile on a daily basis than silver (since marketmakers know the silver price will bob up and down), it is an amplified play on silver over the longer term because of its business model. So, I made 5, 6x on mine bought March 2009, but the silver price didn't increase by this function.

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