IT Traders - it's often good to know how certain stocks, commodities, or currencies trade when compared to the overall market. If you know the relationships of how certain items trade during several market conditions, it will give you a greater insight to recognize when some items are out of their expected relationship parameters, and expect a reversion. This, more than likely, will result in profit. Let's take a specific look at the price of Gold and relate it to the S&P500 market over the last month:
The blue portion is the price of Gold, while the red line is the S&P500. Over this period the markets have gained about 7%, and Gold has gained 2%. But, pay particular attention to the relationship between the two. When the red line dipped very low (-5%) on Oct. 3, the price of Gold remained fairly steady. This alerted us that the markets didn't believe the downturn, and were poised for a bounce. This is exactly what happened over the next few weeks.
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