Trading the Mechanics of Price Action
Do markets have a time each day when they generally rise and a period when they generally fall? An exact time like clockwork? A time when the rise and fall is independent of general market direction?
If this was true then one could simply trade this period long and short each day and dispense with attempts to predict market direction.
This regularity exists. Take for the example the price of Gold (symbol XAUUSD). As you can see from the graph below, the price of gold has risen steeply to a peak in August 2011 from where it has generally fallen with equal rapidity.
The other two lines on the graph, ‘long trade’ and ‘short trade’ are trades placed at exactly the same time each day for exactly the same length of time long and short.
As you can see the trajectory of ‘long trade’ and ‘short trade’ are not altered by the change from bull to bear market in 2011.
Clearly something other than general market behavior is taking place during the periods of these trades.
Trading this effect, including transactions costs, yields returns of over 20% a year unleveraged.
What is taking place? What gives rise to this regularity?
Disclaimer: Returns based on simulated conditions. The returns and volatility measures produced in simulation and backtesting may not be replicated in actual conditions