Trading in Silver

Silver is particularly known for its volatility, which is something that investors tend to not be that fond of, but is something that traders who trade on shorter time frames really love. Volatility is the lifeblood of trading actually, where traders look to take advantage of this by timing their entries and exits to seek to capture a lot of the potential profit that these moves offer.

If we take someone who has invested in silver over the years with a view toward hanging on to it, we will see some wild rides along the way in both directions, up and down, and that’s one of the things silver is particularly known for. These investors from time to time may ponder what would have happened if they timed their investments better, to be in more often when the price is rising and out when it is going down, but this is what traders do, actually seeking to trade these movements.

Trading in SilverWhere silver may not be particularly well suited to longer term investing, when we look to trade silver on shorter time frames, anywhere from a few minutes to even a few years, we’re not bothered by any of this or at least aren’t from a strategic perspective. Instead of pining away over how the movement of silver did not fit our investment strategy, just holding it for instance, trading looks to instead adapt the strategy to the way silver moves, to look to best take advantage of these movements.

In order to be successful with any investment or trade, it is necessary to ensure that whatever strategy we take, and whatever time frame we hold it in, have a positive expected outcome, and one that may be expected to at least deliver satisfactory returns on balance should we execute the plan properly.

While we can say that this is the case for the buy and hold strategy with stocks, where prices go up over the long term and we may reasonably expect that to continue, this really isn’t the case with silver, so in order to be successful investing in it we’re going to have to look to time these investments in shorter time frames than indefinite ones.

Managing Entries and Exits with Silver

This is really where we look to move from investor to trader of some sort, because trading does look to actively time positions according to performance, rather than just some vague belief that the asset will rise in value in the future and then hang on to it and maintain this view even in the face of what should be convincing evidence to the contrary, at least in shorter time frames.

What a lot of investors fail to realize is that even if they are right about their very long term beliefs about asset prices, capturing these moves is not limited to just hanging on to it and riding out all the moves against you, which with silver can be some very significant ones indeed, involving giving back half of your position or more in rather dramatic fashion.

Investors focus too much on where they end up or expect to end up, their destination, without properly considering the journey. Even if the investment ends up working well, where you’ve held your silver position for a number of years and achieved a good return on it, this doesn’t mean that holding it all this time was the right move.

Whenever we liquidate a position, we always have the ability to re-enter it, and as obvious as this seems to be, this escapes investors and to a degree most traders as well. A lot of traders for instance will exit a position too soon and then watch in horror as they see things rebound and lament that they could have made a lot of money had they not exited.

The ability to re-enter a trade when it makes sense to is perhaps the most powerful tool a trader has in their arsenal though, and we exit based upon the state of the market at the time, looking to protect profits and limit losses by doing so, but market conditions do change and adapting to them well is our stock in trade actually.

When it comes to investors, this tends to happen a lot with those who look to time their investments, where they may sell at some point when the price is declining, the price ends up reversing, and they may even sit back for years and wish that they did not sell, where they could have just gotten back in and captured most of this positive move instead.

Unless we understand the importance of this and are prepared to be flexible enough with our entries and exits in order to time an investment, we will not end up timing it well enough, and poor timing is what does in investors and traders who seek to adapt to changing market conditions but do not do a very good job of it.

Silver does require timing in some time frame to be successful, and in essence everyone who dabbles in silver and wishes to have a positive expectation really needs to approach it as a trader would, a good trader that is, and not one that is prone to trading capriciously and just entering and exiting based upon things like emotions, whims, or hope.

What We’re Looking For When Trading Silver

Successful trading can be summed up by entering and maintaining positions when conditions are favorable, and being out of trades when they are not favorable. With that said, deciding whether a position is favorable or not is the real trick to this, although this does not necessarily mean that we need to engage in complex analysis and manage what appears to be a lot of uncertainty.

Perhaps the best starting point in learning how to do this is to look at charts and come up with some general strategies that would have worked well in the past. This is how all good trading plans are derived, although of course the better we analyze past data, the better plan we’ll end up with, so this is something that does require a fair bit of effort and thought to design, even though it need not be very complicated at all.

A lot of traders seek out more certainty here than is practical or realistic, thinking that there may be some magical path that will reveal the future to them like a crystal ball might. The best we can do here is to seek out an edge where we can ride waves of momentum and make more money than we lose while doing so, capturing portions of moves but enough to make the plan profitable overall.

We’re always going to need to apply a smoothing technique of some sort, to look to distinguish the insignificant moves against us from the more meaningful ones that indicate a probable change in direction on the time frame we are using to trade.

Given that silver does tend to move more than most other assets, in other words given that is more volatile, we’re going to need to take that into account and come up with ideas that are specifically suited to the silver market, to get the most out of our trading plan. A certain move with something else may not be significant, but it might be with silver, and vice versa.

The real key with trading silver successfully, as it is with all trading, is to understand that we’re not really looking to predict anything beyond just looking to take advantage of the probabilities of certain trends continuing.

This will involve having to take losses on a great deal of our trades, and we may even lose more often than we win, but what matters is the bottom line, how much profit or loss we have.

Most successful traders lose money 40-50% of the time, and there are even some that have a lower winning percentage than this but still do well, if their winning trades on average produce quite a bit more profit than their losing ones produce losses. It is not about being right, it’s about being right overall, when all the trades are put together and the money is counted.

Silver Trading and Trading Frequency

Anytime we have an edge, the higher the frequency of our trades, the more likely that this edge will manifest. If we put all of our money down on a bet where we win 6 times out of 10, and we lose it and all our money, we still had an edge, but we’ve both risked too much and haven’t traded enough times for this edge to manifest itself.

Those who trade infrequently will be prone to less reliable results than someone who trades silver more often with the same edge, because there will be ups and downs with any strategy and this is a lot like a good poker player needing enough hands to have their advantage show up in their chip stack.

In this case, we say that we’ve given the plan enough time for luck to average out, and while there really isn’t any luck in trading, if we understand luck as random outcomes, there are still distributions of probability that manifest and we need to have a large enough sample to be statistically significant.

The fact that silver prices tend to be more volatile makes this all the more important, as this both increases the potential return and the risk involved, and it’s the risk side that we need to be particularly aware of.

While trading more frequently offers the potential benefit of trading more efficiently and capturing more of the upside of something like silver while seeking to limit the downside, limiting our losses is the more significant of the two, especially with something like silver.

The longer the time frame that we’re looking to trade silver in, the more risk we have to take on, because we can’t just exit when the price moves against us a certain amount like we would if we were trading with shorter time frames, we need to give the trade more room to breathe, and this more room means more risk of bigger losses.

Therefore, the amount of risk we’re willing to take on when trading silver will dictate our time frame more than anything, and this is especially the case if we’re looking to use a lot of leveraging, for instance with trading silver futures or silver contracts for difference.

The reason why traders abuse leverage so much is that they don’t appreciate that risk must be carefully managed in all trades, and leverage means that you must trade in a short enough time frame and exit when an undesirable level of risk is reached, regardless of how tempting the upside may be.

We need to be especially careful with this with silver, although silver isn’t quite as comparatively volatile in shorter time frames as it is in longer ones. This is still a relatively thinly traded commodity though, and the larger spreads by percentage that silver offers adds to this risk.

It is this larger spread that we really need to look at and account for when considering trading silver, and for more frequent traders, bigger spreads can be pretty significant indeed, even though it may not look like much at first glance, where we might just tell ourselves it’s just a couple of cents.

This may have us wanting to avoid time frames that are too short, where we’re going to need a bigger range to look to minimize the effect of the spread. While we may find it more difficult to scalp silver and just look for a few cents per trade, we may find ourselves doing quite well by seeking out a large enough move that we’re not trading so often and can shoot for more significant profits relative to our trading costs per trade, which always includes the spread.

Silver trading can be well worth considering, provided that we are well prepared for it and know what we are doing.



Monica uses a balanced approach to investment analysis, ensuring that we looking at the right things and not confined to a single and limiting theory which can lead us astray.

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