Impressive follow through with good volume for gold and the gold mining stocks. That’s simply what I like to call ‘great technical action’. Today I want to elaborate a bit on what I said yesterday as a frequently asked question I get is what one is supposed to do if gold goes down or doesn’t do as well as expected. As ‘hoped for’ is probably a more precise description. I almost always answer the same way.
The best way to profit from an up trend in a specific sector is to trade the strongest stocks and to stick to them as long as you possibly can. This trading strategy is also the best hedge against a downturn. The best performers attract the best traders, big money and smart money. That’s what makes those stellar performers hold up much better when the trend changes. To make a long story short: It offers you the opportunity to exit the stock rather easily when things stop going your way.
Granted – if you manage to find the rare gem trading at an all time low that ends up being a big winner you will have outperformed the majority of the leaders within a sector. Still I strongly recommend avoiding this strategy. A few reasons:
- You are playing against the odds
- It is more difficult to stay in sync with the markets, experience flow and trade at peak performance
- You are probably not willing to put big money at work with that stock
When all is said and done you are basically fighting the trend and not betting enough money on that single stock. In the end you most often don’t outperform. The lessons are always the same:
Stick with the leaders. Go with the flow. Avoid overhead resistance. Keep it simple.
Two stocks illustrating what I want to convey are RGLD – Royal Gold and IAG – Iamgold. Both now have almost no overhead resistance. The usual suspects like GG – Goldcorp and ABX – Barrick Gold do have overhead resistance. Odds therefore are high RGLD and IAG will outperform.
The two gold stocks in my portfolio I like best are VEN.TO – Ventana Gold and BOW.V – Bowmore Exploration. They trade near their all time highs. That’s reason enough for me to expect them to be stellar performers going forward.
Have a great evening!
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