Larry’s Note: The markets are crazy right now. And they’re going to be that way for a while.
The Federal Reserve is caught in a trap, trying to navigate rising unemployment and rising prices at the same time. That’s like driving with one foot on the gas and the other on the brake. Naturally, it’s going to be a rough ride.
And that’s without touching the action we’ve seen due to tariffs this year.
But here’s the good news… I have a time-tested system for navigating markets like this. My strategy thrives on volatility.
And it’s crushing right now. We’ve closed out trades as high as 97.7% in 13 days, 134.85% in 2 days, and 94.46% in less than a day.
So if you want to join me for my next “Chaos Trades,” be sure to tune in tomorrow at 11 a.m. ET. I’ll share what I’m seeing… and how you can turn the market’s choppiness into regular profits.
All you have to do is RSVP with one click to attend.
When you first start to trade, it’s best to stick to just a small number of stocks.
You might even start with just one. That’s what I did.
As a floor trader at the Chicago Board Options Exchange during the 1980s, I spent years trading one, two, and eventually just a handful of stocks or indices – over and over again.
Even to this day, the S&P 500 is one of my go-to markets to trade.
By focusing on just a few themes, you quickly learn how a stock reacts to any news event. Before long, you’ll know your picks like the back of your hand.
Knowing everything about a stock or index is key.
Yet there are certain tools I use to put the odds in my favor…
Learning From Relationships
I like to gauge how markets move in relation to each other. It’s a key part of my trading strategy.
There are many examples of important relationships in the market.
Like the S&P 500 against the oil price. Or bitcoin versus gold.
Markets all move in relation to each other. Sometimes, they’ll go up or down in tandem… Other times, they’ll move in opposite directions.
Watching one market can help you predict what another market might do.
One relationship that precious metal traders have watched for a long time is between gold and silver.
The chart below plots the ratio of gold against silver over the last 40+ years.
The jagged blue line in the chart measures the multiple at which gold trades to silver (per ounce).
The upper red horizontal line in the chart indicates when gold trades at 80 times the value of silver. The bottom red line shows when this ratio is around 45.
That means if silver is trading at $32 an ounce, and the gold-to-silver ratio is 80, then gold should be trading at roughly $2,560 per ounce (80 x $32 = $2,560).
For most of the last 40+ years, gold has traded between 45 and 80 times the price of silver – though you can see that it has recently been trading along that upper bound.
With that in mind, you can use this relationship as a guide for trades.
For example, if both gold and silver are trending higher – along with the gold-to-silver ratio – you might decide to buy gold over silver. That’s because if the trends hold, gold will rally more strongly than silver.
If the opposite occurred – all three trending lower – I might look to short gold instead of silver. In this scenario, gold would likely fall quicker than silver.
Or if precious metals keep rallying, but the gold-to-silver ratio starts falling from its high level, then silver might be the better option. And so on.
You can use relationships like this as a guide for when to place gold and silver trades.
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Put This Tool in Your Arsenal
Importantly, these key connections exist across all types of markets – in stocks, commodities, indices, and bonds… from one market and sector to another.
To be clear, it doesn’t mean you have to trade all these markets.
As I mentioned at the top, try to pick just one or two stocks or indices and stick with them.
All the same, it’s beneficial to watch other markets that you’re not familiar with.
Then, pay attention to how they correlate to the market you’re trading. Once you get a feel for how they move in relation to each other, you can add them to your trading arsenal.
Bottom line: Understanding relationships like this will give you a big edge as a trader.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict