A Simple Way to Trade Silver
Got an interesting question in the mailbag yesterday:
Is there a simple way to understand silver?
Yes indeed, silver analysts – including your friendly Gold Enthusiast – do sometimes prattle on about this and that factor, and how the silver markets are paying attention this right now, that a bit later.
What if you just wanted a really simple way to trade silver?
We’d recommend starting with good ol’ whole-dollar price levels. Yes, Virginia, traders, and investors still react to those, pretty strongly if simple price charts are any indication. Take this chart of the New York daily closing price of silver for the last 6 months.
Pretty simple right? The point that really jumps out of this chart is how silver seems to hang around, jump off, or dive through whole-dollar price levels. (In trading we talk points, in this case, a point is a US Dollar.)
This is where the most simple trading method comes from. Swing trading is when you buy something when it rises above a price level, and sell when it drops below a price level, usually over a period of weeks or months.
The space in between levels is called “no-man’s land” because no sane man would start a new trade here – you don’t know whether it’s going up or down in between.
Right now, for example, we can see silver’s latest “move” was bouncing off 17, and now we’re waiting to see if it gets to 18. If it doesn’t get to 18 – well, then it would be time to short silver if it drops below 17.
These whole-dollar levels are called psychological levels for good reason. People get confused when talking about single cents, and price in cents fluctuates almost by the second. But dollar levels tend to be more stable, with enough time in between to think and consider and plan.
It seems simple enough. As a place to start, it’s pretty good. But it takes a bit more refinement and some allowances to make sure you’re not driving yourself nuts trading in-out-in-out during those times it’s fluctuating around a level. That’s a discussion for another day…
The Gold Enthusiast
DISCLAIMER: No specific security was mentioned in this article. The author is long the silver sector via small positions in USLV, PAAS and SVBL. He may daytrade around these positions but has no intentions of trading out of these core positions in the next 48 hours.
The SPDR Gold Shares (GLD) was trading at $140.58 per share on Thursday morning, down $1.47 (-1.03%). Year-to-date, GLD has gained 13.69%, versus a 10.30% rise in the benchmark S&P 500 index during the same period.
For 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group.
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