How to Day Trade Gold Using Science: A Simple New Strategy
In this post I'm going to show you exactly how to day trade gold futures with a mathematically proven system I discovered over six years ago.
This phenomenon in gold is very unique. So unique in fact that I haven't seen anyone else discuss it out on the blog-o-sphere. Because this edge is so strange I almost completely missed if it hadn't been for a lucky fluke of statistical analysis.
Let me show you how you can make a ton of money with this bizarre gold day trading edge that's been working for years and will most likely continue to work into the future.
Using science to day trade gold
All trading systems I create first start as a series of observations - and in 2012, I started noticing that gold's price would rise Friday afternoons.
Now, maybe large funds are hedging their bets over the weekend, or maybe foreign governments are making gold purchase plans public, I'm not sure. I make a point of never asking "why" something works too much - I just want to make money.
Remember: Always test your trading ideas before risking a dime. Never take someone else's "advice" without doing your own research first - especially when it comes to your hard-earned money!
Day trading system development
Using my computer science background, I wrote up a program to show me gold's percentage move each hour of every Friday over the last 15 years - which I then averaged together.
This was my first thought to validate it there really was a time of day on Friday that had a bias to the upside.
This is what my program spit out (gold futures trade around the clock):
As I suspected, there did seem to be a small edge Friday afternoons (15 -> 17 hours equates to 2pm -> 5pm).
I've never seen anyone else out there do this sort of analysis, and sadly, it seems that only gold and silver have this little quirk. I looked at the S&P 500, oil, grains, etc... only the precious metals seem to catch a bid in the afternoon.
If you couldn't tell it's pretty clear what a big fan of testing I am. 🙂
Call me a groupie, even. I cannot overemphasize this. I can't get enough of testing. And the main reason I don't trust what others say is because 99% of them never test a thing.
Most retail mom and pop traders haven't adequately tested their ideas because their trading rules are simply too loose, too subjective, too haphazard and sad to say, downright hopeless.
The majority of traders are not just wrong but are completely misguided as to the inner workings of financial markets. Much like people used to think that the earth was flat, most traders believe prices are moved by fundamental information.
Just because someone believes in something strongly doesn't mean they're right. Santa Claus, the Tooth Fairy and the trader's Holy Grail.
Not do must traders fail to test their ideas but they are further hindered by natural instincts for survival. They tend to take profits too quick and let losers run far too long. In order to get out of their own way, they must let computers find trading systems and perform the trading automatically.
Earl Nightingale (1921-1989), dubbed the "Deal of Personal Development" and one of the greatest motivational speakers of all time, was absolutely right when he said that if you want to ride the fast track to success, observe what the majority of people are doing in an industry and then go and do the opposite.
And that's exactly what the most successful traders in the world have done and continue to do.
By taking themselves out of the picture as much as possible (i.e., using a computer algorithm to trade), many program/algorithm traders are amassing a quite fortune.
But I digress...
What time of day to buy gold?
The results of my computer program said to buy gold in the afternoon, but at exactly what time?
To figure this out, I wrote up another program. This program stepped through each 15 minute period on Fridays to determine at what point I should buy gold and at which point I should sell it.
Here's an example of my auto-trading algorithm in action using gold futures contracts @GC:
And when I ran the program over the entire data set of gold futures prices I got this amazing result of accumulated profits:
It turns out the best time to buy gold is at 2:15 pm EST and the absolute best time to sell gold is Sunday evening at 6:15 pm EST.
Remember, you don't need to hit a few grand slams trading to make a fortune - you just need to get hundreds of small base hits.
This system is unbelievably simple and you know my philosophy about trading models, simpler the better!
Simple works and simple is robust. Robust systems are more likely to continue working in the future. Amazingly this system has been working since 2012. That's over seven years of real-time profits!
Trade smart, stay relaxed!
Conclusion: How to day trade gold
- There is a repeatable upward bias in gold Fridays afternoons into Sunday evening
- If gold is trending higher on Friday afternoon:
- Buy gold on Friday at 2:15 pm EST
- Sell gold on Sunday at 6:15 pm EST
- Source code for this automated day trading system - Written in TradeStation - always test before use!
- Trade smart!