The Greatest Gold Stock System You Should Trade

Jay Kaeppel wrote last week an interesting post about gold stocks: The greatest gold stock system you’ll probably never use. I have a twist to this system which I’ve been trading for some weeks. Since Kaeppel has published it I might as well publish it myself. And it’s so simple and the results are so astonishing I have a hard time believing this will continue. Anyway, here it is:

  1. If GDX rises from the open to the close more than 0.1%, buy on the close and exit on the opening next day.
  2. If GDX rises from the open to the close more than 0.1% the day before, sell short on the opening and exit on the close (you have to both sell your position from number 1 but also short some more).

Test period is from inception in may 2006 until present. The above criteria is all there is to it. The reason I have set a minimum rise of 0.1% is that you need to send orders at least 15 mins before the close. The strategy works well for any movement bigger than -0.1%. So this gives you some leeway.

This is the result of part 1 of the strategy:

P/L in % #trades #wins Avg
273.2 716 448 0.38

This is the result of part 2 of the strategy:

P/L in % #trades #wins Avg
185.9 707 406 0.26

Here is the equity curve for both these parts combined:

No slippage and commission is included. My experience tells me they should not be detrimental to the strategy when the average is so high per trade.

This is an incredible simple system, and just as incredible easy to trade. You can just send market orders on the close and on the opening. No fancy stuff. Still, I think most would not trade this system. Many will say “nice system, but need to be tweaked a bit”. Others will simply say it’s too good to be true.

However, over the last 3-4 months it’s not been as profitable as previously. Is this the beginning of the end of this system? Have too many traders caught interest and it gets erased by all seeing the same patterns? Is it just randomness for 6 years that made this equity curve? Why has gold stocks risen from close to open, but fallen from the open the next day? This is what makes trading interesting!

If we flip the strategy the results is a lot worse and certainly not a tradeable strategy.