Most major investors spend most of their time tracking their trades in a bid to catch up with whatever market move is going on. Most of the strategies recently are typical, relying on watchful eyes throughout the day. What if there was a way one could make some money under 24 hours without going all starey-eyed and staring at markets for the whole day? Exactly: can one take advantage of moves overnight-as one sleeps, perhaps?
Today we’re going to share with you the *Gold Overnight Trading Strategy*, which trades through focus in the *gold market* as well as the gold miners. In this article, we’re going to talk about why such a strategy works, its performance in trading ETF’s like GLD, the gold fund and GDX, the gold miners and even how a few key variables added can make this strategy even stronger.
You will know by the end of this article how the Gold Overnight Trading Strategy works and how it will help you reap consistent returns trading gold and gold miners in less than 24 hours as you sleep.
Why The Overnight Edge Works
The overnight period is pretty intuitive-an intuition: at times of day financial markets tend to behave one way. These patterns for both gold and gold miners produce positive returns if traded over the hours from when the market closes till it opens the following day.
What Does Make the Overnight Period Provide an Advantage?
Based on research and historical data, buybacks near the close and immediately before the open for the next day outperform holding over the balance of the day. Here’s how it plays out in two popular gold-related ETFs:
GDX (Gold Miners ETF):
The equity curve for buying GDX at the close and selling at the next day’s open has been almost perfectly straight line up showing positive return on a daily basis. The order to buy at the open and sell at the close usually results in loss.
GLD (Gold ETF):
The same pattern carries over into the GLD line, that is the price of gold. The buy at close, sell at next open strategy produces higher returns than the buy at the open, and sell at the close strategy. Returns were slightly negative.
This simply affirms the statement that overnight period is predominantly in favor of the gold market even in its ETF form.
Improvement of the Overnight Strategy
Although this overnight edge is promising, standing alone, it is rather weak to make it a complete trading strategy. The overnight return mostly never exceeds in size to be taken as an independent system. However, if we introduce some crucial variables, we can stretch the strategy and, thus, make it more profitable.
Key Variables to Introduce
- RSI (Relative Strength Index):
The RSI measures the speed and change of price movements. Adding the RSI indicator allows us to filter for periods of extreme overbought or oversold conditions, thus letting the strategy be activated only with strong momentum of either gold or gold miners. - Moving Averages (SMA or EMA):
Adding a moving average filter, like an SMA of 10 days, will do most of the heavy lifting in determining an overall trend. If the price is above the moving average, then it should be an uptrend, and the chances of a good overnight move increase also.
How It Works
- Entry Criteria: Buy GLD or GDX at close of the market.
An RSI should not be in overbought conditions (usually less than 70) and the price should be above the 10-day SMA.
Exit Conditions:
Sell at the open of the next trading day
Risk Management:
A stop-loss should be placed to maintain the maximum potential loss overnight. For instance, set 1-2% bellow the price, which had prompted the opening buy.
- You will exit when price has moved in your favor, or sell at open to pick up overnight gain.
Backtest Results: Strategy Works Well Over Time
We have made the decision to implement a backtest on the Gold Overnight Trading Strategy using both GLD and GDX. Here are the results we obtained:
- Positive Returns:
Both ETFs have produced very smooth equity curves using the strategy; hence, holding a position overnight has been profitable for the last twenty years. - Annual Returns:
The overnight strategy has also accumulated annualized returns of 6-8% using GLD and much more for the very levered GDX from gold mining stocks. - Risk-Adjusted Returns:
Even though invested for relatively short periods, this strategy has fetched outstanding risk-adjusted returns. Since the strategy has relatively low exposure to time risk, the strategy is more stable and predictable compared with most strategies.
Why It Works in the Gold Market
It also works well in the gold market with anything that is very sensitive to global events, which happen quite often outside of U.S. market hours. These events often create price action that looks like it occurs during the overnight session, but the trader can catch that without having to carry positions through the day.
Why It Works in Gold Miners (GDX)
The gold miners sector is more visible overnight than the gold price itself, because the GDX is a more volatile index than the gold price. Because their price movements are so sensitive to price movements of gold, gold miners would have more significant overnight price fluctuations and hence, become a better candidate for the strategy of overnight trading.
- Volatility of Gold Miners’:
These are actually leveraged plays on gold and tend to experience more significant price swings. These price swings can sometimes lead to even greater overnight moves-this is actually what the strategy aims to catch.
Conclusion: Make Money While Sleeping
The Gold Overnight Trading Strategy allows a trader to capitalize on the excess in the overnight period when trading gold with relative exposure to those fluctuations with an optimum capital gain. The strategy of investing for less than 24 hours with respect to the capture of trading near close to open allows one to gather steady, predictable returns.
But in including the RSI and the moving averages, while it may look like a more complex strategy that probably would increase the probability of being right, the backtest results do establish the fact that it has indeed been a sound approach for nearly two decades-and with some seriously strong, risk-adjusted returns.
If you want a simple and hassle-free way to earn some money on the gold market while your sleep, then you’ll benefit from exploring the Gold Overnight Trading Strategy. With GLD or GDX trading, this strategy lets you bank a steady and guaranteed profit from the gold and gold miners market without having to check all those markets all day long.