Gold Stocks Strategy: Gold Miners (GDX – ETF)

The Gold Stocks Strategy, revolving around GDX (Gold Miners), suggests buying if GDX rises by more than 0.1% from open to close and selling short if it rises similarly the day before. With results showcasing profits of 273.27% and 185.97% respectively, from May 2006 to the present, this system offers a compelling perspective. However, recent performance shifts prompt questions about its sustainability. Delve into the simplicity and potential skepticism surrounding this engaging trading strategy.

Jay Kaeppel wrote 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 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 (Gold stocks (Gold Miners)) rises from the open to the close by more than 0.1%, buy on the close and exit on the opening the next day.
  2. If GDX (Gold stocks (Gold Miners)) rises from the open to the close by 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).

The test period is from inception in May 2006 until the present. The above criteria are 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 trading strategy:

P/L in %#trades#winsAvg

This is the result of part 2 of the strategy:

P/L in %#trades#winsAvg

Here is the equity curve for both these parts combined:

gdx technical analysis

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

This is an incredibly simple gold stock trading system, and just as incredibly easy to trade. You can send market orders on the close and 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 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 the interest, and it gets erased by all seeing the same patterns? Is it just randomness for six years that made this equity curve? Why have 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 are much worse and certainly not a tradeable trading strategy.

Update in January 2021: As more or less expected, the system has not performed after publishing the article. Actually, it has performed very badly and incurred huge losses. Most likely, the strategy was just noise and randomness.

What is the essence of the Gold Mining Strategy described in this article?

The trading strategy focuses on GDX (Gold Miners) and involves buying if GDX rises from the open to the close by more than 0.1% and exiting on the opening the next day. Conversely, it suggests selling short if GDX rises by more than 0.1% from the open to the close the day before and exiting on the close of that day.

What is the test period for this Gold Mining Strategy, and what results were achieved?

The test period spans from the inception of GDX in May 2006 to the present. The strategy yielded a profit and loss (P/L) of 273.27% for the buying part and 185.97% for the selling short part.

Why might some traders be skeptical or hesitant to adopt this Gold Mining Strategy?

Some traders might be skeptical due to the simplicity of the strategy or the belief that it seems “too good to be true.” Additionally, the strategy’s profitability may have declined in recent months, raising questions about its future performance.

What is the difference between a gold miners strategy, gold mining strategy and a gold stock strategy?

A gold miner’s strategy and a gold mining strategy refer to the approach adopted by companies involved in gold extraction and production, a gold stock strategy pertains to the investment approach taken by investors seeking exposure to the gold market through publicly traded companies in the gold mining sector.

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