When determining the price trends of gold commodities the need for technicality is very important. The fact is for any investments to have guaranteed outputs the inputs must be statistical and based on very real variables. When it comes to gold trading there are important indices that will help you in getting the best market analysis both in trends and actually gold prices. The importance of getting the price trends right is based on the reality that trading on commodity requires a high level of objectivity just to make sure that you don’t get into bad into bad investments. There are two important indices that are used in gold trading and that include the RSI or simply the relative strength index and the moving averages.
The relative strength index or RSI
The importance of the relative strength Index is that it is the most effective index to determine the trends of gold with price divergence. The RSI compares recent gains made by the commodity and the loss made over the same period of time in a bid to determine if the gold is overbought or oversold. The RSI index is between 0 – 100 and in case the index reads above 70, the interpretation is that gold has been overvalued or for that matter overbought therefore the demand is high and good for sale. When the RSI is below 30, the commodity is undervalued and therefore that signals the price is low due to low demand and thus the best time to buy. The idea of trading on commodities involves buying at low prices and selling at high prices and there is nothing that can guarantee you a good analysis like the way the RSI does. If you are looking to make good returns in gold trading, you may want to keep the use of the RSI in mind.
Moving averages are used to statistically confirm the data given by the RSI (relative strength index. Moving averages give a clearer picture of the trends in the prices. The calculation of the average is based on daily average gold prices averaged together over a specific periods of time. The average represents the price of gold at that period and gives the most precise figure that you can act on. While it is important to consider the RSI as a very strong index, it is important to know that at the end of it all the two are interrelated to a large extent. Either way if you are a potential gold trader you will be interested to know that indeed you can make a very good call using the two.
Michael Hastings writes interesting articles about gold trading. He works as an editor at HowToTradeCommodities.com. Read on to find out more