Full Moon/Moon Phases/Lunar Cycles Trading Strategies (Backtest. Settings and Rules)
Last Updated on May 19, 2023
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.
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 backtests.
How the Moon Phases and Lunar Cycles Impact Trading Strategies
The moon and its phases have been thought by some traders to 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.
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?
We haven’t backtested such a strategy ourselves, but luckily others have. Let’s look at two backtests that the website spintwig did on the S&P 500 (SPY):
Full moon trading strategy backtest
Let’s 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.
This strategy is invested about 50% of the time. How has it performed?
Not good. It has underperformed massively, as indicated in this chart:
New moon trading strategy backtest
Let’s flip the strategy and go long at the open when a new moon starts, and we sell at the open on a full moon.
The spintwig chart above indicates that this has been a good strategy with a return similar to buy and hold despite being invested about 50% of the time!
We found another backtest that looked at the same entry and exit:
The guy who made that backtest even managed to make a better strategy by only taking trades on certain days of the week:
There you have it! It turns out that stocks perform much better when a new moon begins!
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.
List of trading strategies
We have written over 1000 articles on this blog since we started in 2012. Many articles contain specific trading rules that can be backtested for profitability and performance metrics.
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