2012 has been tough going for silver investing. Half of the analysts who cover silver say one thing. The other half seem to say the opposite. Most have been quiet, compared to 2010 and early 2011. Those who are posting forecasts and making recommendations seem to be right about half the time.
As volatile as gold is, silver is even more so. If a silver investor makes the right silver trade before that big move happens, big profits can be made. But if it's the wrong trade, the loss can be just as big. How can we silver investors make the volatility work for us until the big move comes?
If you have read my previous articles, you know that I am long-term bullish on silver investing. I recommend owning physical silver for the long run, and accumulating it at regular intervals until one has the desired percentage of assets in physical silver. When silver makes a big move, up or down, I don't even think about my physical silver. My physical silver is long-term wealth insurance, not an investment.
If you have read my previous articles, you also know that I believe that sometime over the next 1 - 3 years, world economies will crash. I believe a likely result is that the price of silver will crash along with it, because half of the mining output each year is consumed in industrial applications, and that demand will contract significantly. I believe the price of silver will probably stay down until the price of gold seems outrageous, causing people to invest instead, in "poor man's gold," silver. But I don't want to put my silver investing on hold until those events transpire.
Besides buying physical silver, my silver investing includes shorter term trades in "paper silver." In the first month of 2012, I have closed out both a long and a short position in silver, and have just gone short again. These trades are based on short-term trend analysis of the price of silver, along with analysis of price support and price resistance.
The three primary components of the strategy are: 1) short-term trend analysis, including price support and price resistance levels, 2) bull and bear silver ETFs, and 3) trailing stops.
For trend analysis, I download a silver price chart and draw the trend lines and price support and resistance levels on the chart. When a short-term down trend is broken, I buy shares of bull silver ETF. I place a trailing stop in such a way that the initial stop price is just below the last low. As price approaches resistance, I close up on the stop, so I do not give up too much profit when/if price reverses at resistance. If price blows right through resistance without hesitation, I'm still in the trade. If price wavers, and then breaks through resistance, I'll probably get stopped out. However, resistance, when broken, becomes support. I'll buy the bull ETF back and set a trailing stop in a manner that will put it initially just below the former price resistance.
My trailing stop on the bull ETF will be close enough that I will probably be stopped out before price breaks the down trend. My goal in this form of silver investing is to make a small percentage profit often. My first two closed trades in 2012 resulted in a 9% profit and an 11% profit. The duration of the trades was five and six trading days respectively. The actual profit percentage is not great, but the annualized profit is spectacular.
To continue with the strategy, upon getting stopped out of my bull ETF position, I will buy shares in a bear ETF the day after price closes below the short-term up trend line. I'll place a trailing stop in a manner that results in the first stop price being slightly above the most recent high price.
When the bear ETF gets stopped out and the short-term down trend is broken, I'm back into the bull silver ETF.
By Phil Stramel
Learn how to protect yourself against the current (and impending) economic disaster with silver investing. Get periodic silver price chart analysis, including trend lines, resistance levels, and support levels. For more information: http:www.esilverinvesting.com
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