Thursday, April 3, 2014

Trading SIVR Silver ETF For Beginning Traders

Whether you are day-trading or simply looking for a stock to trade on a regular basis, I find that physical metals are a great starting point for the beginning or intermediate trader/investor.

Why do physical metal ETF's good for beginning traders?

  1. For beginning & intermediate traders, a company stock will have many factors that can move the price up/down - and being able to identify all those factors is not easy for a new trader. You have to analyze the companies business model, competition, market conditions, products, employees, management, chart patters ... ect ... ect.

    Analyzing the demand levels for silver and other metals is a far less daunting task.
  2. I agree with Warren Buffet and others who view metals like gold & silver as something that isn't an invest-able business model. When you invest in gold or silver, the metal just sits there, waiting for demand to rise or fall based on factors that are outside the metals control.

    That doesn't mean you can't trade the metal as it rises & falls based on this demand though!

Remember, we are talking about the physical metal ETF's like GLD, SLV, SIVR ... ect. NOT the mining stocks of these metals. The mining companies are subject to price fluctuations outside where the underlying metal price is going - making them act more like company stocks, than a physical metal.


Silver has been on a rather historic decline in price over the last year or so. Some investors believe the price of the metal has been manipulated by large banks, but the banks have (so far) have fended off those accusations. Regardless if the large investment banks are manipulating the metal price or not - a banks influence of the metal price can only go so far before other market factors start taking over.

The $20/ounce mark for silver is a significant because by most accounts, $20 is (around) what it costs the miners to actually extract the silver from the ground. In other words, if you can buy silver for under $20/ounce - you are paying less than what it actually costs to extract the metal from the ground today.

That's important because miners are only going to continue mining operations for a period of time while prices are at this $20 level. At some point, miners will decide to cut back (or cease) production, which could lead to a reduction in supply of the physical metal.


Above is a broad view of the SIVR Silver ETF chart for the last 4 years or so. I like trading this ETF because inside a Charles Schwab account (and possibly other brokers) because you can trade this ETF commission free. That's actually an attractive way to trade silver because if you were to buy/sell the physical metal (like Silver Eagle coins for example) you'll always pay a premium over the spot price and a commission (or fee) when you sell it to a shop or on eBay for example. Remember however, this ETF does have expense fees - so it's not like you don't pay any fees, but when you are actively trading, saving $8.95 each way can add up to significant savings.

At the time of publishing this article, I actually had a small position open in SIVR, as illustrated by the green line. I have bought SIVR at this level, and sold at higher levels many times during the last 9 months or so, as SIVR has consistently touched the ~ $19/share level, only to bounce up into the low $20's a short time later. It appears that this $19 level is acting as a level of support on the downside - making it an attractive entry point for trading.

Some things to keep in mind however: the trend is DOWN - and Silver can certainly fall below the $19 level despite it being more expensive to mine the metal out of the ground at that price. But remember, we are trading this ETF, not buying & holding it like a stock or mutual fund in our retirement account. Remember to set stop-losses at technical levels below $19 if you don't want to get caught in an acceleration of the downtrend. Additionally, I plan an exit price, usually only 2 or 3 percentage points above where I bought the shares because silver has been somewhat range-bound the last few months. 

  1. Trade Silver with a plan in place. Pick a price in the $19 range to enter your trade, but always plan your exit price at the same time.
  2. The trend is down. Always place stop-losses in order to limit any further downside move.
  3. You won't get rich trading this stock, we are anticipating short, 1 - 3 point moves during our trade.
If you keep these things in mind, you can make a few percentage points while silver is trading at levels around what it costs to extract it from the ground.

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