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XAUUSD Index? Things traders need to know

Gold is an attractive asset for traders looking for investment opportunities in the market. In this article, Learn Forex Trading will introduce you to the XAUUSD Index – one of the most popular indices in the forex market. From there, traders can choose an effective gold trading strategy.

Overview of information about the XAUUSD Index

Before learning about XAUUSD Index, let’s dissect the concept of XAUUSD.

What is XAUUSD?

XAUUSD is the abbreviation for the currency pair gold (XAU) and US dollar (USD). It shows how many US dollars an ounce of gold is worth. For example, if XAUUSD is 1800, it means that one ounce of gold is worth 1800 US dollars.

XAUUSD is one of the most important indices in the forex market. The reason is that gold is a safe asset, has a high value, and is not affected by inflation. Many investors and traders use gold as a means of preserving and increasing the value of their assets. Especially in times of economic, political, and social instability.

See more: You will regret not knowing about XAUUSD

One lot of gold is equal to how many ounces when trading gold?

When trading gold, you need to know how many ounces a lot of gold is. To be able to calculate the profit and risk of each transaction. One lot of gold is usually equal to 100 ounces. However, some forex brokers also allow you to trade with smaller lot sizes. Including 10 ounces, 1 ounce, or even 0.01 ounce.

To calculate the profit and risk of a gold trade, you need to know the following formula:

Profit/Risk = (Closing price – Opening price) x Number of lots x Lot size

For example, if you buy one lot of gold in 1800 and sell in 1810, your profit will be:

Profit = (1810 – 1800) x 1 x 100 = 1000 USD

If you sell a lot of gold in 1800 and buy it back in 1810, your risk will be:

Risk = (1800 – 1810) x 1 x 100 = -1000 USD

Factors Affecting the XAUUSD Index

The XAUUSD trading index not only reflects the value of gold but also the value of the US dollar. Therefore, to analyze and forecast the trend of the XAUUSD Index, you need to grasp the factors affecting both types of assets.

Impact of USD on XAUUSD chart

USD is the world reserve currency, widely used in international transactions, investments, and loans. Therefore, the value of the USD has a great influence on the value of other assets, including gold. A simple rule that traders need to keep in mind is:

When the USD strengthens, XAUUSD will fall. The reason is because you need less USD to buy an ounce of gold.
When the USD weakens, XAUUSD will increase. The reason is that you will need more USD to buy an ounce of gold.

So how to know whether the USD is strong or weak? You can track US economic indicators, such as GDP, CPI, PPI, NFP, interest rates, and trade balance. In addition, traders can combine the use of technical analysis tools. These include RSI, MACD, and Stochastic, to determine the trend and strength of USD on the chart.

Political news affects the XAUUSD Index

Political news is also an important factor affecting the XAUUSD Index. The reason is because it can cause instability, fear, and lack of trust in the market. When there are adverse political events, such as war, crisis, upheaval, or policy changes, many investors and traders will look to gold as a haven, to protect their assets. them from the devaluation of currencies. Therefore, when there is bad political news, XAUUSD will tend to increase.

On the contrary, when there are positive political events, such as peace, stability, cooperation, or agreement, many investors and traders will sell gold to switch to more profitable assets, such as stocks, bonds, or currencies. Therefore, when there is good political news, XAUUSD will tend to decrease.

Monetary policies and interest rates of countries

Countries’ monetary policies and interest rates also affect the XAUUSD Index, because they determine the level of supply and demand and the value of other currencies. Some simple rules you need to remember are:

When countries adopt loose monetary policies, such as printing money, buying assets, or lowering interest rates, the value of their currency will decrease, and XAUUSD will increase because gold is considered an asset anti-inflation.
When countries adopt tight monetary policies, such as withdrawing money, selling assets, or raising interest rates, the value of their currency will increase, and XAUUSD will decrease. The reason is that gold is not profitable, and cannot compete with higher-yielding assets.
Monetary policies and interest rates of countries

How to trade gold effectively for traders

After understanding the factors affecting the XAUUSD Index. Traders need to know how to trade gold effectively for traders. Below are some strategies and chart patterns you can apply when trading gold.

Appropriate gold trading strategies

Some popular gold trading strategies that traders can apply are as follows:

Trend following strategy: You can use technical analysis tools. These can be mentioned as moving averages (MA), trend lines, or Bollinger Bands, to determine the trend of XAUUSD, and trade in the direction of the trend.
Support and resistance strategy: You can use important price levels, where XAUUSD has turned, to identify support and resistance levels. You should buy when XAUUSD touches the support level, and sell when XAUUSD touches the resistance level.
News strategy: You can use the economic calendar, to track important economic and political events, which can cause large fluctuations for XAUUSD.

XAUUSD chart patterns that traders need to know

Some popular XAUUSD chart patterns that traders can refer to are as follows:

Reversal patterns: These are chart patterns, which show that the trend of the XAUUSD chart may change direction. Some common reversal patterns are double top, double bottom, triple top, triple bottom, head and shoulders, and cup with handle. Traders should buy when XAUUSD breaks the bullish reversal pattern. Conversely, sell when XAUUSD breaks the bearish reversal pattern.
Continuation Patterns: These are chart patterns, which show that the trend of XAUUSD may continue. You should buy when XAUUSD breaks the bullish continuation pattern. At the same time, sell when XAUUSD breaks the bearish continuation pattern.
Gold trading strategy

See more: Opening and verifying an ICMarkets account

Experience trading with the XAUUSD Index for traders

Finally, traders need to have some experience trading with the XAUUSD Index. Thereby, you can optimize profits and minimize risks when trading gold:

Always have a plan and trading strategy before entering an order. Includes profit target, risk tolerance, entry point, and exit point.
Comply with capital management principles, and do not trade too many gold lots. At the same time, you should not let the losing order run too far.
Use technical and fundamental analysis tools appropriately. Don’t use too many indicators and don’t ignore important news.
Always monitor the continuous developments of the market. At the same time, be ready to adjust your trading plan when unexpected events arise.
Always learn from experience, and improve your trading skills over time.
Gold trading experience for traders

So in the above article, Learn Forex Trading has informed you about the XAUUSD Index. This is one of the most important indicators in the forex market. To trade gold effectively, you need to grasp the factors that affect the XAUUSD Index. In addition, traders also need to have a trading plan, manage capital, and learn from experience professionally.