Full MoonMoon PhasesLunar Cycles Trading Strategies

Full Moon/Moon Phases/Lunar Cycles Trading Strategies (Rules, Settings, Backtest, Example)

Some traders believe they can use the phases of the moon cycle (lunar cycles), such as the full moon, to time the market and make profitable trading decisions. This has given rise to the Full Moon/Moon Phases/Lunar Cycles Trading Strategies. What are they?

The Full Moon/Moon Phases/Lunar Cycles trading strategies are a method of analyzing and making trading decisions based on the phase of the moon. The strategies are based on the idea that the phase of the moon can influence market behavior and that certain moon phases are more favorable for making trades. Stocks perform better when a new moon begins compared to when a full moon phase begins.

In this post, we answer some questions about the Full Moon/Moon Phases/Lunar Cycles trading strategies. At the end of the article, we provide examples of strategies with backtests.

Table of contents:

Key takeaways

  • The stock market performs much better when a new moon begins compared to when a full moon cycle/phase begins.
  • The article shows you a complete moon phase trading strategy with trading rules further down.

How the Moon Phases and Lunar Cycles Impact Trading Strategies

Moon Phases Trading Insights

Some traders have thought that the moon and its phases will have an impact on market behavior and trading strategies. Some traders use a lunar calendar to track the phase of the moon and make trading decisions based on that information.

There is no scientific evidence to support the idea that the moon and its phases have any impact on financial markets, and many experts consider this to be a form of superstition.

However, a 20-year study by the University of Lausanne showed that trading strategies based on the full moon and lunar cycles outperformed the overall market by an average of 3.3% per year.

Also, according to a study conducted by the University of Zurich, trading strategies based on the lunar cycle have outperformed the market by an average of 6.8% per year over a period of five years. We’ll cover more backtests later in the article.

Moon phase example

Coding the moon phase is not as complicated as it seems. We did it, and below the different lunar cycles for the stock market is marked.

Moon phase example stock market
Moon phase example stock market

The yellow dots signal a full moon while the black dots mark a new moon cycle.

Exploring the Correlation Between Trading and Full Moons

There is no scientific evidence to support the idea that the full moon phase has any impact on financial markets. Many experts consider the claim that there is a correlation between trading and full moons to be superstition rather than a valid trading strategy.

It is important to rely on rigorous analysis and research when making trading decisions, as any supposed correlation may just be a coincidence.

Analyzing the Effect of Lunar Cycles on Market Volatility

Analyzing the effect of lunar cycles on market volatility involves studying the relationship between market volatility and the phase of the moon. Some traders believe that certain phases of the moon, such as full moons, can lead to increased market volatility. However, there is no scientific evidence to support this idea.

The financial markets are complex and are influenced by a wide range of factors, including economic indicators, political events, and global events. Attempting to predict market volatility based solely on lunar cycles is unlikely to be successful.

Examining the Impact of Moon Phases on Investment Returns

Some studies have shown that moon phases affect returns. For example, a 20-year study by the University of Lausanne showed that trading strategies based on the full moon and lunar cycles outperformed the overall market by an average of 3.3% per year.

Also, a study conducted by the University of Zurich showed that trading strategies based on the lunar cycle have outperformed the market by an average of 6.8% per year over a period of five years. However, these effects could be coincidental.

The Benefits of Incorporating Lunar Cycles into Trading Strategies

Incorporating lunar cycles into trading strategies can potentially provide traders with an edge by helping them identify key turning points in the market.

The idea is that the gravitational pull of the moon can affect the tides and other natural phenomena, which in turn can influence human behavior, including market activity.

However, it is important to note that this is a speculative and controversial theory, and there is little empirical evidence to support the idea that lunar cycles have a significant impact on financial markets.

Developing a Profitable Trading Plan Using Lunar Cycles and Moon Phases

To develop a profitable trading plan using lunar cycles and moon phases, you would have to analyze historical market data to identify patterns or trends that align with lunar cycles and moon phases. Once patterns have been identified, you create a trading plan that incorporates these insights.

For example, a trader might look to enter or exit positions during certain phases of the moon or during specific lunar cycles. You will have to backtest the strategy and also incorporate risk management methods.

Establishing a Trading Calendar Based on Lunar Cycles

Establishing a trading calendar based on lunar cycles would involve identifying the key lunar cycles and moon phases that are believed to have an impact on market activity, and then using that information to plan trades.

Some possible lunar cycles to consider when establishing a trading calendar include:

  • Lunar month: The 29.5-day cycle of the moon’s phases, from new moon to full moon and back again
  • Lunar quarter: The 7.38-day cycle of the moon’s first quarter, full moon, and last quarter
  • Lunar year: The 354.37-day cycle of the moon’s orbit around the Earth

How to Leverage Moon Phases for Maximum Trading Profits?

Leveraging moon phases for maximum trading profits would involve identifying the key moon phases that are believed to have an impact on market activity, and then using that information to plan trades. However, you must thoroughly backtest your strategy and add a risk management plan.

Investigating the Effect of Lunar Cycles on Trading Volume

Investigating the effect of lunar cycles on trading volume has yielded mixed results, with some studies finding a correlation between lunar cycles and trading volume. In contrast, others have found no significant relationship. Overall, the evidence is inconclusive and more research is needed to establish a clear link between lunar cycles and trading volume.

Timing Investment Decisions with the Lunar Cycle

Timing investment decisions with the Lunar Cycle involves aligning investment decisions with specific lunar cycles or moon phases, such as the full moon or the new moon. The aim is to identify key turning points in the market. While there is little empirical evidence to support the idea that lunar cycles have a significant impact on financial markets, you may need to consult with your financial advisor to be sure that this method is suitable for you.

Utilizing Moon Phases to Improve Trading Strategies

This involves identifying key moon phases that are believed to have an impact on market activity and using that information to make predictions about future market behavior. You may use the moon phase to confirm a signal from your trading strategy.

Uncovering the Benefits of Trading with the Moon Phases

This would mean identifying patterns that align with specific moon phases and using that information to make predictions about future market behavior. There are a few studies that support this idea, but there is still a lot of debate about it. Moon phase trading may help you improve your trading methods, but be cautious with it.

Exploring the Correlation Between Moon Phases and Market Performance

The correlation between moon phases and market performance is a controversial and speculative theory, which suggests that certain moon phases are associated with high market activity and increased volatility. However, there is little empirical evidence to support this claim. Studies have yielded mixed results, with some finding a correlation while others have found none.

Analyzing the Impact of Lunar Cycles on Risk Management

Some traders believe that Lunar Cycles affect market volatility, and this can have an effect on risk management. They tend to trade more during certain moon phases and stay out of the market during other phases. However, there is little empirical evidence to support this claim, and studies have yielded mixed results.

Examining the Role of Moon Phases in Swing and Day Trading

Moon phases may or may not have any role in swing and day trading. It depends on the trader’s beliefs. Those who believe in the moon phase theory may tend to trade more during certain moon phases, such as the full moon, than say the new moon.

Understanding the Relationship Between Moon Phases and Market Sentiment

Many stock exchanges tend to experience more volatility than normal during a full moon. This is believed to be a result of the increased amount of light at night affecting investor sentiment. Some also believe that the moon can have a calming effect on the markets as well if it interrupts investors’ sleeping patterns.

Utilizing Lunar Cycles to Achieve Maximum Trading Efficiency

This would involve looking at historical market data to identify patterns that align with specific lunar cycles and using that information to make predictions about future market behavior. Some possible lunar cycles to consider include the lunar month, lunar quarter, and lunar year.

Evaluating the Impact of Moon Phases on Investment Risk

This would involve looking at the performance of certain assets or markets during different phases of the moon, such as the full moon or new moon. Once patterns have been identified, it’s important to conduct a thorough backtesting of the strategy to evaluate the potential risk and return on investment.

What are some statistics about trading strategies using these seasonal effects?

Academic studies have generally found that there is little to no statistically significant relationship between lunar cycles and stock market returns. That said, the backtests we refer to in this article contradict that.

A few studies, such as a 20-year study by the University of Lausanne, however, found that trading strategies based on the full moon and lunar cycles outperformed the overall market by an average of 3.3% per year.

Full moon/moon phases trading strategy backtest – does it work?

Let’s code the moon phase and backtest the lunar cycle in the stock market. Can lunar trading really work, or is this just a spurious correlation? The evidence is always in the pudding. We used the Montgomery cycle dates and put the formula into our trading platform. In this backtest we used Amibroker, but you can easily use another platform. The code is not that difficult!

Moon phase trading strategy – trading rules, returns, performance

We make the following trading rules:

  • We go long at the open on a full moon day and sell at the open when a new moon happens; and
  • We are in cash the rest of the time.

This strategy is invested about 50% of the time. How has it performed?

Pretty good!

Below is the equity curve for the S&P 500 from 1960 until today (the cash index – not including dividends):

Full moon phase strategy
Full moon phase strategy
  • Annual return: 4.4%
  • Time invested in the market: 50%
  • Risk-adjusted return (annual return divided by time spent invested): 8.8% (buy and hold is 7.2%)
  • Max drawdown: 49%

Thus, if we adjust for the fact that the strategy is invested only 50% of the time, this strategy outperforms the market significantly. However, all the outperformance happened after the financial crisis in 2008/09.

Let’s flip the trading rules and only go long when a new moon phase begins and sell when a full moon is formed:

New moon cycle strategy
New moon cycle strategy

Compared to the strategy backtest above, it underperforms on all metrics except max drawdown:

  • Annual return: 2.8%
  • Time invested in the market: 50%
  • Risk-adjusted return (annual return divided by time spent invested):5.6%
  • Max drawdown: 44%

Improved moon phase indicator strategy

Can the moon phase trading strategy be improved?

Fortunately, yes.

We add one seasonal condition to our trading rules:

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The S&P 500 performed like this from 1960 until today when we added the seasonal condition:

Moon phase trading strategy
Moon phase trading strategy

The statistics and trading performance read like this:

  • Annual return: 3.5%
  • Time invested in the market: 23%
  • Risk-adjusted return (annual return divided by time spent invested): 14.8%
  • Max drawdown: 33%

The strategy is only invested 23% of the time, but it performs better considering the risk-adjusted returns.

We can even make it better by including a second seasonal rule and condition:

THIS SECTION IS FOR MEMBERS ONLY. _________________ BECOME A MEBER TO GET ACCESS TO TRADING RULES IN ALL ARTICLES CLICK HERE TO SEE ALL 350 ARTICLES WITH TRADING RULES

We reduce the number of trades, obviously, but we improve the risk-adjusted return:

Lunar cycle trading strategy
Lunar cycle trading strategy

The statistics and trading performance improve:

  • Annual return: 2.9%
  • Time invested in the market: 15%
  • Risk-adjusted return (annual return divided by time spent invested): 19%
  • Max drawdown: 19%

Of course, the more rules we apply to the strategy, the more we risk overfitting the strategy.

Moon phase crypto strategy

With the rise of interest in the crypto market, let’s make a similar Bitcoin moon cycle strategy. Does moon trading work or can we make a Bitcoin moon cycle strategy?

We make the following trading rules:

  • We go long at the open on a full moon day and sell at the open when a new moon happens; and
  • We are in cash the rest of the time.

From the end of 2014 until today, we get the following equity curve for Bitcoin:

Bitcoin moon cycle strategy
Bitcoin moon cycle strategy

Let’s establish the statistics and trading metrics:

  • Annual return: 32.2%
  • Time invested in the market: 50%
  • Risk-adjusted return (annual return divided by time spent invested): 65.6% (buy and hold is 68%)
  • Max drawdown: 81%

The Bitcoin lunar strategy can also be improved:

We change the trading rules and add one seasonal rule and condition:

THIS SECTION IS FOR MEMBERS ONLY. _________________ BECOME A MEBER TO GET ACCESS TO TRADING RULES IN ALL ARTICLES CLICK HERE TO SEE ALL 350 ARTICLES WITH TRADING RULES

When we add the seasonal condition, the strategy improves a lot:

Moon phase crypto
Moon phase crypto

These are the trading facts:

  • Annual return: 43.3%
  • Time invested in the market: 34%
  • Risk-adjusted return (annual return divided by time spent invested): 126% (buy and hold is 68%)
  • Max drawdown: 56%

By adding that seasonal trading rule, all the trading performance metrics improve.

Moon trading – programming code

If you want to look into the moon phase in trading yourself, we have provided the complete Amibroker code for you:

THIS SECTION IS FOR MEMBERS ONLY. _________________ BECOME A MEBER TO GET ACCESS TO TRADING RULES IN ALL ARTICLES CLICK HERE TO SEE ALL 350 ARTICLES WITH TRADING RULES

Summary

Is this just a spurious correlation? Your guess is probably as good as ours… We don’t know. However, we see no logic or rationality for why it should be like this. However, the evidence, facts, and statistics indicate the moon phase indicator works, at least over the last two decades.

FAQ:

How do Moon Phases and Lunar Cycles Impact Trading Strategies?

Studies and backtests suggest that trading strategies based on lunar cycles outperformed the market by an average of 3.3% to 6.8% per year.

Do Lunar Cycles Affect Market Volatility?

There is no scientific evidence to support that lunar cycles affect market volatility.

What Benefits Come from Incorporating Lunar Cycles into Trading Strategies?

Incorporating lunar cycles may provide traders with an edge by helping them identify potential turning points in the market. However, this is a speculative and controversial theory that lacks logic. However, the moon cycle has proven to work, albeit it’s difficult to explain why. Is it a spurious correlation?

What is the moon phase indicator in trading?

The moon phase indicator in trading is used to time entry and exits. Evidence suggests that the stock market performs better around a new moon.

For example, a study published in the “Journal of Empirical Finance” found that stock returns are generally higher around the new moon than the full moon. The proposed explanation is that human behavior, including investor mood and sentiment, might be subtly influenced by the lunar cycle, leading to variations in market performance.

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