Silver Trading Strategies, Tips, and Techniques

Trading silver is not suitable for beginners. Or is it?

It is certainly not meant for those who have just stumbled upon the explosive potential of silver and believe that its long-term outlook guarantees easy short- and medium-term trading.

Silver is a tricky market, and in order to succeed, it requires a good understanding of trading strategies, tips, and techniques specific to silver. In other words, one must grasp the intricacies of the silver market before risking their hard-earned money.

In the below chart, you can see how two commonly used techniques that are supposedly bullish - a rally on huge volume, and a breakout above previous highs - had the opposite effect.

Silver prices do not always behave in the way that traditional technical analysis suggests. This, however, does not mean that everything is chaotic when it comes to silver. It is important to remember that you should not be tempted to sell low and buy high, as that is a common mistake inexperienced traders make. Trading in silver is more complex than that and requires a nuanced approach that takes into account certain aspects of classic technical analysis and portfolio management while disregarding others. It's important to know which aspects fall into which category, and this is where two decades worth of experience comes in.

Below, you'll find a set of rules that we have found to be useful over the years. We've divided them into three categories for your convenience:

Silver trading strategies are broad rules that are useful not only for silver traders and investors but also for other markets.
Silver trading tips are more specific to silver and contain more detailed information, although they may overlap with gold trading tips at times.
Finally, silver trading techniques include details that don't fit neatly into either of the above categories but are still worth keeping in mind.

Before we delve into the details, let's take a look at the silver market as a whole.

Silver Trading Strategies

Before we delve into methods for silver trading, it's pivotal to grasp the most critical element of successful trading - controlling your position sizes. This principle is the cornerstone of trading, yet many novices fail to give it the attention it deserves. By contrast, seasoned traders give it the utmost importance.

Remember, always maintaining a handle on your silver trading position sizes is crucial. As a general rule, a higher confidence in being right allows for a larger position size. For example, long-term investments typically involve larger sizes compared to short-term trades. But if you're just dipping your toes into the world of silver trading, your main focus should be on dodging the trap of overtrading, taking on more leverage than you can handle, and starting off with zero leverage in your early trading days.

Maintaining a balance in your portfolio is of paramount importance, and that includes not risking more than 0.5%-2% of your capital on a single trade. It might seem mundane, but it's a cardinal rule in trading. Sure, there are going to be profitable opportunities, but there's also the possibility of trades not turning out as expected. The goal is to mitigate the fallout from such scenarios so that they don't wreak havoc on your portfolio.

Draw an analogy with dating. People who end up with a lot of phone numbers are also the ones who've been turned down a lot. What's important is not allowing the emotional impact of rejection to lead to self-doubt or hinder your progress.

In the trading world, the focus should be on what you can control. You cannot control the market; what you can do is prepare for unanticipated situations. That's where the idea of not investing too heavily in a single trade comes in. Keeping your trades modest can help maintain your objectivity and mental well-being, as larger positions often bring more stress.

With the concept of position sizing now under your belt, let's move on to some other silver trading strategies.

While trading silver might be your primary focus, it's a good idea to set aside some capital for long-term investments. It can help smooth out the volatility of your returns and stabilize your gains. But remember, this is merely a perspective and shouldn't be considered investment advice.
Before trading in your preferred market, it is essential to check the happenings in other markets as well. This is because today's financial markets are interconnected, and various things are related to each other. Although it is evident that gold impacts silver, it might not be as clear that the general stock market also influences silver due to its multiple uses in the industry. If you notice that the stock market is likely to fall hard for some reason, it may pose a risk to silver as well. However, other factors such as the outlook for gold also play a vital role, but keeping an eye on the stock market's performance can enhance the rate of return on your silver trades.

As you can see above, in 2020, adopting a strategy to closely monitor the stock market would have provided some level of preparedness for the significant declines in silver prices.

When opting to follow a particular analyst, it's essential to do your homework first. Consider the length of their career and their performance reputation. Equally critical is to examine their trading strategies to ensure they align with your needs and style. If you prefer frequent trades but the analyst leans towards long-term positions, the service might not meet your expectations, even if it's profitable over time. Let's face it, a mismatch in trading frequency could lead to frustration and early departure. On the other hand, if your strategy involves holding positions for extended periods, a service that offers short-term trades will likely vex you. The same principle applies to the approach involving the magnitude of moves and proximity to agreed stop-loss levels. Analysts can have quite diverse strategies, so finding one whose approach not only generates value but also aligns with your style will serve you best.
It's often beneficial to stick with the people you choose to follow in the market, even if they make mistakes occasionally. The market's short-term unpredictability and emotion-driven movements may cause everyone to err at some point. However, blindly investing your money based on their actions is not advisable. Instead, it's important to keep a watchful eye on their performance and examine their ability to increase your capital over an extended period. Remember to practice patience and critical observation, as they are key components in this process.
It's important to understand the distinction between silver and silver stocks. Silver stocks, in particular, can be more volatile in the short term. For instance, in 2020, silver experienced a rally of approximately 160% from its intraday low to its intraday high. In comparison, the SIL ETF (which comprises silver senior miners) saw a rally of around 230%, while the SILJ (composed of silver juniors) witnessed an increase of about 250%. However, it's worth noting that during declines, there were instances where silver stocks faced more significant losses than silver itself. Therefore, it is crucial to assess your assets and positions Consequently, please be sure to check your assets and positions with your ability and willingness to take on risk.

Silver Trading Tips

Before we move to a more detailed list of tips for trading silver, let’s take a look at a few examples.

Silver typically plays catch-up in the final stages of a movement- either up or down. Thus, when the price of silver starts to heat up and mining stocks are slow to follow, it's often a smart move to consider taking earnings from your long position.

The price of silver can get so heated during the tail end of a rally that it exceeds its technical resistance. Novices in silver price analysis may take these breakouts at face value, often making a rookie mistake. Silver is notorious for its fake breakouts (fakeouts) that can mislead inexperienced traders. For example, that was the case in early 2021, when silver breached previous highs briefly, only to decrease continuously for numerous months after.

The tip here is to, again, check other markets – gold and mining stocks. Are they also breaking higher? If so, then there might really be something to the silver breakout. If not, it could be a bull trap.

Below we’ve compiled a more thorough list of silver trading tips:

It's crucial to keep an eye on cycles and turning points as they harness the power of the cyclical nature of markets, such as with the USD Index. These cycles can serve as strategic allies for both short- and long-term trades. Interestingly enough, the USD index's influence extends to gold just as profoundly as it does to silver.
It's beneficial to utilize tools such as the RSI and Stochastic indicators when dealing with silver and other precious metal stocks — their reliability has been proven over the years. The MACD could also be a useful indicator, particularly for very long-term trends. While there are other indicators that might be handy, do ensure you fully understand them before basing your trading decisions on their insights.
It's essential to evaluate the effectiveness of each indicator you plan to utilize in the silver market, or any other market you're interested in, before basing your real capital trading decisions on it. Remember, past performance does not guarantee future success, but if an indicator has consistently failed, that's a significant red flag. Similarly, just because someone has a good reputation does not guarantee they're trustworthy, but if you've verified they have a tendency to deceive, it might be wise to seek information elsewhere.
Don't hesitate to adjust an indicator if it's working well, but you believe there's room for improvement. Let's take the RSI as an example. If optimal selling opportunities seem to occur when the indicator hits roughly 65 instead of the traditional 70 level, it could be beneficial to either (1) introduce an extra overbought/oversold level, (2) the crossing of which would produce a signal (in this scenario, a sell signal), or (3) tweak the indicator's parameters, straying from the default values.
Consider utilizing moving averages only when they've demonstrated effectiveness in a certain market in the past. If a market has consistently disregarded a specific moving average, it's likely you can too. This is actually a key guideline applicable to all tools and indicators - if they've not performed well in a given market before, it might be unwise to rely on them the next time around. In the context of silver, the 50-day moving average often proves effective (serving as both support and resistance), although it's not infallible. Hence, it's a good strategy to use it as support or resistance only when other methods corroborate this.
It's essential to stay updated on the seasonal fluctuations of silver prices.
Leverage trend lines and trend channels - these tools have frequently demonstrated their value as markers of support and resistance in gold, silver, and mining stocks trading. The more notable the lows or highs that form the basis of a particular trend line or channel are, the more firm the support or resistance tends to be.
Remember, don't underestimate the power of the volume. This often-overlooked detail is a crucial determinant of market trends. If you notice an upward market trend coupled with escalating volume, it's a good indication that the rally is about to gain more momentum. However, if this trend is not backed by impressive volume, it could signal the rally's end. Similarly, if the market is experiencing a downturn with increased volume, expect the decline to persist. But, a decline with low volume doesn't necessarily forecast anything significant (note the lack of symmetry here). These are general tips, but always cross-verify with historical patterns before making your move. Now, let's talk about a special scenario in the silver market. If the silver price outperforms gold in the short term, supported by sizable silver volume, it might be a signal that the market has peaked or is about to peak.
Historic peaks and troughs frequently act as significant support and resistance markers, respectively. The more prominent these peaks or troughs are in the market history, the higher their capacity to serve as robust barriers or cushions. This principle holds true across various markets, including that of precious metals, highlighting its universal relevance. Trend lines, drawn by linking previous lows or highs, present another widely applicable technique, especially in the precious metals market. Similar to support and resistance levels, trend lines built on more critical price extremes offer sturdier support and resistance.
Keep in mind that market behaviors are both cyclical and fractal, exhibiting repeated patterns at different scales. This self-similarity in rallies and declines implies that price patterns seen on a larger scale will likely appear proportionally on a smaller scale. This understanding can significantly aid in predicting the potential lows or highs of silver, gold, or mining stocks. If the current price movement mirrors previous ones, it's plausible that the impending part of the pattern will follow suit, providing a strategic advantage in market positioning.
Pay attention to patterns in pricing, such as the 'head and shoulders' pattern. However, before you act based on these patterns (assuming that a particular pattern is currently relevant and likely to provoke a certain action, which could prompt you to initiate or close a specific trade), make sure to check if this pattern was effective in this market in the past. For example, silver's 'breakouts' (although not a pattern in themselves, this example explains our point) have often led to price drops (breakouts were refuted), instead of increases. This means their actual implications were the exact opposite of what one might have predicted based on the traditional definition of a breakout.
Be patient and seek confirmation. It's typically a good strategy to hold off for verification of a breakout or breakdown prior to making decisions. Particularly in the precious metals marketplace, our experience suggests that observing three successive closing prices above or below the significant price point is a reliable way to confirm the breakout or breakdown as "verified" and meaningful. An invalidated breakout can be viewed as a bearish indicator, while an invalidated breakdown is a bullish sign.

Having knowledge of these silver trading pointers already elevates you above most traders in terms of market acumen. Combine them with the strategies we've discussed earlier, and they can lead to impressive outcomes. The additional silver trading methodologies presented below will further enhance your understanding and offer you a significant advantage over other traders in the silver market.

Silver Trading Techniques & Tactics

It's crucial not to limit your analysis to just one time frame. Regardless of whether your trade is short-term, you should still take into account the trends in the medium and long-term. The strength of support and resistance levels generally increases with the duration of the time frame. As a result, a resistance level from a medium or long-term trend could halt a move you've observed in the short-term. Similarly, if you're focusing on medium- to long-term trades, insights from the short-term could assist in perfecting your market entry or exit timing.
It's important to keep an eye on real interest rates. Many investors cite inflation as a reason for maintaining their long positions. However, when nominal yields outpace inflation expectations, silver's intrinsic appeal diminishes. For instance, those invested in fixed income often swap government bonds for silver or gold in their portfolios. But in the case of silver, which doesn't yield, rises in real interest rates can prompt these bond enthusiasts to shed their silver positions and shift their funds back to government bonds.
Always stay alert for peculiarities in silver trading. This may look like a wide-sweeping strategy, but it's undeniably effective. If something unusual catches your eye, delve deeper to understand its genesis, and look for similar occurrences in the past - analyzing if they correlated with a particular pricing pattern in silver, gold, or mining stocks. If you note a pattern, it might prove beneficial to leverage it in trading. If not, there might be other consequential effects on precious metal prices that the unusual incident triggered.
Do not be swayed by intriguing terms such as "golden cross" or "death cross" when it comes to the precious metals market. Our extensive research suggests that these techniques typically yield unproductive or ineffective results. Always make sure to verify the effectiveness of any technique on your chosen market over the past several years before implementing it. Remember, past success does not guarantee future returns and serious consideration should be given if a strategy shows no signs of past success at all.
Examine significant inflows and outflows from well-known ETFs (like GLD or SLV). It might seem logical that large inflows (investors purchasing ETFs and hence investing in a specified market) would imply a bullish market and substantial outflows would suggest a bearish market. However, that's not always the case. Oddly enough, these extreme conditions could indicate peak interest. Major market highs often coincide with widespread bullish sentiment—meaning heavy inflows into ETFs may actually signal a market top, a bearish scenario rather than a bullish one. So how do you distinguish whether an event is bullish or bearish? One method is to compare it to past events and analyze the resulting market activity. Alternatively, you could examine if the extreme inflow or outflow levels were reached gradually (which likely doesn't signal a trend change) or if there was a sudden surge. A sudden spike could represent a significant sentiment shift and consequently, a crucial market reversal.
Keep a close eye on the pulse of investors in the precious metals market. When optimism is running at full throttle among investors and traders, it's a sign that silver might be nearing its peak. This is a good time to seek out signals that indicate a market top or confirmations that the peak has been reached. In these situations, consider divesting from your long positions or even taking up short positions. On the flip side, if pessimism prevails among investors, we're probably nearing or are at the market bottom. To gauge investor sentiment, consider using tools like Google Trends to track the frequency of silver-related searches (e.g., "silver stocks"), or utilizing surveys with questions such as "what will be the silver price in three months" or similar.

Let's take a moment to appreciate the power of sentiment monitoring through the lens of early 2021, as shown in the insightful chart below (chart courtesy of Google Trends).

The sharp surge in the popularity of "silver stocks" in early 2021, as observed, signifies a peak in silver prices. This is primarily because market tops materialize when a particular market garners universal interest, leading those contemplating investment to finally take the plunge. The spike illustrated in the chart above typifies such a scenario.

Additionally, it's worth noting that if a leading silver-related website experiences slowdowns or crashes following a significant price shift, it's a strong indicator of immense traffic or interest in silver. This could potentially signal an upcoming price extreme, a phenomenon we witnessed in 2011 when silver prices peaked.

Besides the trading strategies and tips discussed earlier, choosing the right broker is equally crucial. Your choice hinges on where you wish to channel your investments - be it in ETFs and ETNs, mining stocks, or derivatives such as futures contracts, options or CFDs. It's essential to conduct diligent cost analyses, taking into account aspects like commission fees, transaction spreads, currency conversion charges, and account management expenses.

We've shared quite a bit on silver trading, but keep in mind that it's not an exhaustive list. There are more insights we've gained that we can't disclose publicly. We appreciate your interest in exploring the precious metals market with us.

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