- Shain Vernier, a full-time trader, bets on crude oil, gold, and currencies over stocks.
- He utilizes the Fibonacci retracement tool for determining entry and exit points.
- He emphasizes the importance of understanding market drivers and the cyclical nature of commodities.
Shain Vernier was introduced in 2010 to trading by his uncle, a shale oil executive who had a trading desk that was set up since the late 1980s. Since then, he has been able to make a living off of it as a full-time gig.
His father was a property developer and Vernier had spent a lot of years on job sites working in the construction industry with him. He was very familiar with math and measuring tools and this especially came in handy when he became a trader.
Today, his go-to choice of assets to trade are crude oil (his speciality), currencies, and gold. But unlike stocks, which have a wealth of data that traders can use for fundamental analysis, trading commodities and currencies can often be more of a wild card. These assets can be cyclical or easily impacted by unforeseen global events.
That's why, at the core of his strategy, he avoids speculating about the market's direction or making price predictions. His approach is to get in and out quickly.
Vernier has taught many others how to trade these assets as an online coach at HowToTrade.com.
Gold is extremely sensitive to several macroeconomic factors, he said. Traders must consider the consumer price index, Fed announcements and monetary policy, geopolitical tensions, and more. These events tend to bring participation to the gold market because the commodity is viewed as a haven, he said. Also, if the US dollar is perceived as weak or there are inflation fears, it drives investors to gold and vice versa.
A prime example has been the last few years in the post-COVID era: once inflation took off, the price of gold went to astronomical highs, Vernier said. Since March 2020, gold is up by about 60%. Recent tensions between Iran and Israel sent the gold to record highs of $2,411 on April 19.
An influx of gold buyers creates tremendous opportunities to make money if you know how to trade it, he noted. There are three main ways to trade gold: by buying it physically and selling it to gold dealers, by buying it on the spot market, which is by far the most popular way to trade gold internationally, or by trading gold futures contracts. The latter two are traded like stocks and can be done on an exchange without ever needing to take physical possession of the asset.
When Vernier isn't trading crude or currencies, and the gold market shows some volatility, he will trade spot gold and futures contracts on gold, giving him the right to receive the commodity in the future for a predetermined price.
Crude oil has a completely different set of market drivers than gold does, Vernier said. Gold gives you unique trading opportunities that aren't necessarily the same as the rest of your portfolio. For example, when tensions in the Middle East spike, it attracts gold buyers and sellers. Intraday traders could use that volatility to parlay their wins into something significant on a daily range and build extraordinary gains, he said.
"And that's what I would say is the most attractive thing about gold during those geopolitical events. Is it risky for buy-and-hold investors? A hundred percent, definitely. Those events can turn the whole market on their head, but for traders, folks that are getting in and out, it's all about profitability and you need volatility to do that," Vernier said.
Trading gold
Traders can use various tools and patterns to set their entry and exit points. For gold, Vernier favors using the Fibonacci retracement tool, which marks percentage points based on the Fibonacci sequence at 23.6%, 38.2%, 61.8%, and 78.6%. These levels attract more buyers and sellers. As the price of an asset pulls back, it gives possible entry points to profit off the drop in anticipation of a bounce.
While gold is often seen as a commodity held long term, Vernier's goal isn't to try and predict the direction of its price, but rather to trade the middle and get out quickly.
He noted that the Fibonacci retracement tool can be used on spot gold and futures contracts. However, since the spot gold market is larger than the futures market, there is a tremendous amount of selling and buying volume for trading gold directly, which creates market depth at all times, he said. This creates more opportunities to capitalize by trading gold directly.
A viable trading range must exist for the tool to work well. When there's a lack of price action, it won't work, he noted. Patterns that resemble a picket fence should be avoided because they mean price action remains relatively low.
The chart below includes weekly candles that demonstrate a picket fence pattern.
To determine whether price action has moved enough, Vernier uses the 24-day exponential moving average (EMA) and its surrounding Bollinger bands to track the upper and lower price averages. If the price surpasses the top band and a candle closes above, it signals the beginning of a potential price breakout. This is when he uses the Fibonacci retracement tool to quantify the movements and find his entry point.
He sets the range using the swing low and swing high points on the upward price move. He marks the lowest point of the upward range (swing low) after the initial upward price move and the upper extreme, which is the highest price point demonstrated by the wick on the candle (swing high).
The chart below demonstrates a breakout following stagnant price action. The green shaded area represents the Fibonacci tool's swing low and swing high range.
Once the sequences are set, he determines possible entry points during the pullback. The chart demonstrates those points are at 0.382, 0.618, and 0.786, in line with Fibonacci retracement levels. The sequence begins at .236, but he doesn't use it because it's too soon to confirm a pullback. The 0.5 point represents the 50% mark and is not part of the sequence.
The chart below shows how he marks the swing low and swing high points for a demo trade he made on Thursday. Once the first green candle closed above the top band he used the 0.382 sequence as his entry point when the price of gold pulled back to $2,325. He exited his position at $2,330. The trade illustration was executed via paper trading on TradingView on April 25. Paper trading does not precisely reflect real market executions due to possible market frictions, which can cause delays in executing a trade in real time. However, in most cases, given the depth of the spot gold market (XAU/USD), order slippage is minimal, he noted.
He emphasized that spot gold is often traded through an over-the-counter broker, and the volume bars may not be visible. This means traders have one less indicator to use and therefore, you're only relying on price action.
Get the latest Gold price here.
