Can you Make Money Day Trading Gold?

Gold trading volume

Market participants include global central banks, large banks, hedge funds, and professional private traders.

For example, according to salary.com, a gold trader working in HSBC bank can earn about 300 thousand dollars a year:

Traders' salaries

While earning high salaries, traders in banks have strict targets, risk tolerance standards and other metrics they must meet. It is also important to note that to get a job, one must be educated and pass tests before accessing real money to open positions.

If you trade gold as a private trader, then there is much more freedom - for example, you can increase the volume of a position above the norm if you "feel" that the trade will turn a profit. But at the same time, the amount of earnings will fluctuate extremely, including negative values.

Next, experts show how profits are calculated and how much you can earn in gold under several scenarios:

• trading gold with a Forex bot

• trading gold through a proprietary trading firm

• trading a futures contract

• trading a binary option

To show the difficulties faced by algo-traders, experts will conduct an experiment with testing a trading bot on the gold market. This bot is included in MT4 terminal by default (you can open an account at MT4 broker, download the terminal and repeat the experiment). The algorithm is based on an elementary moving average trading strategy.

Testing the profitability of the bot on the gold market

Experiment settings:

• Date: 2 years, comprising 2022 and 2023

• Timeframe: 5-minute

• Spread = 10

• Bot parameter settings: default

Here are the results (as you can guess even before the experiment, they are negative):

Testing the profitability of the bot on the gold market

For 2 years, the bot made 2590 transactions on the gold market and "earned" minus 3825 dollars, that is, the trader's earnings amounted to minus 1912.5 dollars per year (excluding VPS and other costs).

As you can see from the yield curve, there were 3 thirds:

• In the first and last (when market conditions were favorable) thirds, the bot did not drain the deposit. In fact, there could even be deposit growth there, if we exclude the influence of commissions and spreads. To reduce the impact of commissions on the bottom line when trading gold, read: Best Brokers for Commodity Trading in 2024

• In the middle third, the bot consistently drained the deposit because the nature of the market and the settings of the moving average parameters did not match each other

Maximizing the difficulty of creating a bot that will universally trade in the plus side in any market conditions is one of the main reasons why trading bots fail. Including those that cost a lot of money.

By the way, bot sellers know this weak point and can:

• show only test fragments where the bot does not fail

• simply add dates from the history to the code that prohibit the bot from trading, so that there are no failures on the MT4 tester

If you want to try to achieve profitability in the gold market using bots:

• Try to create a semi-automatic trading strategy. For example, run trend trading bots when, according to your analysis, the market is ready to make an important breakout

• Question the promises of steady and excessive profits from trading bots

• Use risk control. Do not allow the bot to lead to losses you cannot afford. Do not use martingale

The screenshot below shows one of the successful setups:

ALT: Gold futures trading

In this case, the price dipped to test a large volume zone (shown as a red rectangle using the Market Profile Indicator) and then bounced off of it. Let's say you were lucky enough to buy 1 standard contract at 2165 and sell near the previous resistance at 2179.7.

Your profit = 147 ticks (1 tick equals 10 cents). Or 1470 dollars (excluding commissions, which are usually enough to pay for the price movement of 1 tick in your direction). This can be called a very successful day, despite the fact that you closed the long before the price continued its growth to the historical top.

Let's assume that trading gold on bounces from large levels, you make 0-3 trades per day (frequency of appearance and identification of sets). The achievable average result for a day = 20 ticks of price movement in your direction, or 200 dollars per day without commissions.

Then your earnings from gold trading for 20 days (or 1 month) will be = $4,000 dollars. Or $4k * 12 = $48k per year. Earnings can be multiplied if you trade not 1 contract, but two or more. Or increase your performance by "picking up" more than 20 ticks per day.

Here is a table showing the average profit in dollars from 1 trade when trading binary options on gold with an initial bet of $100, depending on your success rate and payout level:

Calculations show that to make money in the gold market using binary options, you need to focus on having a strategy that will provide the right outcome 60% of the time.

Let's say you have such a strategy, which gives an average of 3 signals per day. Then trading with a bet = 100 dollars and payout = 80%, your earnings for 20 days (1 month) will be: 8 * 3 * 20 = 480 dollars per month. Or $5,760 per year.

It is important to be responsible in choosing your bet size. If it = $100, your total capital should be around $5,000. So that in case of failure, the loss is an acceptable 2% of the capital.