Trading seasonal patterns in precious metals, today: Gold
Today our focus will be on Gold, which has shown a very interesting seasonal tendency over the last 15 years.
As pointed out in several weekly market outlooks over the last few weeks, besides a favourable technical and fundamental outlook for Gold, the precious metal is also about to enter a very favourable seasonal window into the yearly close.
The seasonal bullish pattern developed over the last 15 years during the period between December 18 through January 10, and offers us a chance to develop a strategy to trade Gold.
Seasonal Pattern in Gold
The key parameter of this seasonal bullish pattern is that between December 18 and January 10, Gold saw an average gain of 47 USD for 12 of the past 15 years.
In the remaining three years, it dropped on average only 19.65 USD, while the maximum loss and a maximum drawdown of 31.03 USD.
Trade the Seasonal Pattern: Gold
And now the key question: how could we trade this?
Here's the plan:
- After identifying the profitable seasonal window, buy Gold on the closing price of the starting date on December 18 (22:59 CET).
- Identify the maximum loss within the seasonal period. Then, have a look at the daily chart and the ATR(14) indicator.
If the maximum loss is above the ATR(14) reading, round it up to the next round number and use it as worst-case-stop.
If the maximum loss is below the ATR(14) reading, use the ATR(14) as your stop-width (rounded up to the next round number).
- Look at the average gain of the seasonal pattern, and place the take profit at this distance from your entry point.
- If the trade is not stopped out or it does not reach its take profit within the seasonal period, end the trade market on the closing price on January 10.
Looking at current market data, since the ATR(14) in GOLD a daily time frame is currently trading around 14 to 15 USD and the maximum loss of the window being 31 USD, our worst-case stop will be placed based on the ATR(14) 31 USD away from our entry price.
Meanwhile, the average gain of the seasonal pattern is 47 USD within this period. So, after entering the trade on the closing price of December 18, we would add 47 USD to get our take profit level.
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between September 14, 2018, to December 13, 2019). Accessed: December 13, 2019, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of Gold fell by 1.7%, in 2015, it fell by 10.4%, in 2016, it increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, meaning that after five years, it was up by 6.4%.
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