Issue 45: 3 Charts Prove Screaming Trade Opportunity - Masters in Trading Digest

3 Charts Prove Screaming Trade Opportunity

Welcome to Issue 045 of Masters in Trading Digest.

In today’s issue of the Digest, we highlight three charts to prove the relative breakdown between precious metals.

What the heck is happening with Cannabis stocks this week?

And, a packed schedule of LIVE events!

New trades are released Sunday evening.

Enjoy,
Jonathan

Precious Metals

With inflation dominating the news cycle, it’s prudent to invest in hard assets.  

A hard asset is a tangible resource or asset that possesses fundamental value.  Examples of hard assets include land, real estate, commodities, and precious metals.

Let’s take a look at the tradable precious metals.

Precious metals historically have been used as a hedge against inflation, and also a way for investors to diversify their portfolios.

The most liquid futures contracts for metals include:

  • Gold
  • Silver
  • Platinum
  • Palladium
  • Copper

The chart below shows the relative value relationship between Silver, Gold and Platinum going back 10 years.  If we take a step back, we probably agree that the trend of all three instruments is relatively the same.

Gold has outperformed Silver and Platinum over the 10 year period, but again – notice how they are moving relative to each other?

When Gold is strong, the others inevitably follow.  It’s important for traders to recognize that no single asset class moves in isolation.  Instead, everything is interconnected through various spread trades, hedges, and the natural supply and demand of the overall economy.

For the next chart, I removed Gold.

Why do you think we did this?

Going back over 10 years, we’ve already concluded that Gold has been a strong outperformer.  If Gold continues to rally it’s fair to assume that other correlated asset classes will also trade higher.

Notice how Silver has outperformed Platinum over the same 10 year period?

A trader may come to this conclusion:  If gold is expensive relative to silver, and silver is expensive relative to platinum, perhaps buying Platinum (and maybe selling Gold) is the prudent risk vs reward play?

As a 25 year trader, I have always traded using relative value.

Throughout my career, the traders I have met use a variation of a relative value approach.  I have yet to meet a career trader that relies on technical analysis alone.

The next chart (below) shares something different than the previous two.  Instead of overlaying the various instruments, we are now looking at only Gold vs. Platinum, as one line. 

The correct ratio of this trade is 1x Gold vs. 2x Platinum. We see trends like this with our Futures EDGE web-based charting platform.

If we start at the beginning of the chart, and the “Buy the Gold vs. Platinum” spread.

Traders would BUY one Gold while selling 2 Platinum Futures.

Notice the strength of Gold relative to Platinum?  Don’t miss the fact that Platinum (right now!) is historically INEXPENSIVE to Gold, going back the 10 years on the above chart.

This is how we find trades.   

What to do?

Traders may consider getting long Platinum, either through buying the futures contract or purchasing the ETF: $PLTM (last trade: $9.75)

The chart above shows the relationship between Silver and Platinum.

Platinum is inexpensive in every way we see.

Any questions?  Email us at: support@mastersintrading.com

Masters in Trading Digest - Issue 45

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HEARD IN OUR DISCORD

FINAL THOUGHTS

WHAT TO EXPECT IN THE NEXT MIT DIGEST

This week's class schedule is packed!

  • Web 3.0 Explorer Session – 1:00 PM TODAY
  • Secrets to the Lock-Up Trade – 1:00 PM THURSDAY
  • Friday’s Breakdown with Pablo Lucena – 1:00 PM FRIDAY

Keep your feedback coming into support@mastersintrading.com.  We’re excited to share your feedback along with fantastic suggestions for upcoming issues.

Until then, trade smart and always manage your tail-risk.

Thanks for reading,
Jonathan Rose

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