Panning For Gold? Try Night Trading With Emini Futures

Ever go out and buy yourself one of those gold pans, sit by a river bed, sifting and sifting, hoping beyond hope that you will somehow find that golden nugget you've always wanted to find. Maybe you bought a gold "map" that gives you the absolute certain location of where gold is apt to appear in the river. Well...look no more. Why pan for gold when you can trade gold futures? While gold pans can only process a limited volume of streambed material, you can trade unlimited numbers of gold futures contracts.

Gold futures traders buy and sell about 200,000 contracts daily. With that kind of volume, there is plenty of liquidity to get in and out of positions quickly. To daytrade gold, the margin is about $1000 per contract, depending on the brokerage. For every tick (price fluctuation) in your direction, you earn $10.00. Gold generally moves 4-6 ticks at a time, so its possible to make 3-4 ticks ($30/40 per contract) on a trade. Trade 5 contracts for $5000 and on one trade you're apt to make upwards of $200. If that risk / reward ratio ($1000 for $10) seems high, there is also an emini gold futures contract, with a margin of $500, and pays $3.30 a tick. Mind you, the emini gold futures contract may not have the same liquidity that the gold futures contract has, but it is a slower market and easier for novices first learning the futures market. And it gives you a chance to learn to trade without blowing out your futures brokerage account. At $3.30 a payout, should you have a bad trading day, you might lose $25. Compare that to trading 500 shares of a stock and lose a couple thousand.

Why are gold futures so popular? Market participants are actively trading gold in the face of economic uncertainty. There seems to be an inverse relationship between gold futures and the S&P500 emini, ES. When the stock market, as depicted through the ES, trends down, gold futures trend up. They can serve as leading inverse indicators for one another. With inflationary data at hand, no intereste rate hikes from the Treasury to curtail inflation, crude oil trending higher, gold futures also climb.,

On a technical basis, watch for 3 factors trading gold futures. The MACD histogram, the Slow Stochastic, and the 100-DMA. For a bullish trend, look for the MACD to cross above the MACD average, the Slow Stochastic %K to be below 80 and the close price to cross above the 100-DMA. For a bearish trend, look for the MACD to cross below the MACD average, the Slow Stochastic %K to be above 20 and the close price to cross below the 100-DMA.

One technical note, however. During the summer doldrum months, watch out for low volume trading. On these days, better to sit on your hands than put money right into the market. Trade on days when there is hot news (such as unemployment releases, GDP, or the Feds interest rate announcments), then gold is a hot place to trade.

For novice day traders, begin by sticking with the emini version of gold until you get your feet wet. Once you understand how gold trades, you'll want to swtich to what the institutions trade, for the payout and the volatility!

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohenís Free Webinars. Check out my Futures Trading Articles. For more information, send an email to or call 866-617-2037 today.