Trading gold futures can be approached in multiple ways. Two effective methods are a multiday trend-following strategy and an intraday mean-reverting strategy. These strategies not only diversify by instrument type but also by strategy type.
The intraday mean-reverting strategy takes advantage of price levels from the previous session. For a long trade, it waits for the price to drop below the previous low and cross back above it. For short trades, it does the opposite with the previous high. This strategy has a stop loss of $1800 and a take profit of $1600. While the risk-reward ratio seems unfavorable, the strategy's win rate is above 50%, making it effective.
Analyzing the intraday strategy shows it has performed well since 2016. Despite a rough period, it has formed new equity peaks. The long side shows steady growth, while the short side had more struggles. The strategy averages around $144 per trade with around 650 trades, which covers operational costs. Its win rate is above 50%, typical for strategies with an unfavorable risk-reward ratio. Except for 2019 and 2020, yearly returns have been strong, particularly in recent years.
The second strategy is a multiday trend-following one. It uses session highs and lows calculated on the current session. Positions only open after a certain time of day to allow these levels to form. This strategy does not have a take profit but has a $2000 stop loss. Trades either close with a $2000 loss or the position reverses.
Evaluating this trend-following strategy shows it performs well over time. Despite some sideways phases, it recovered and formed new highs. The long and short sides are balanced. The average trade is higher than the intraday strategy due to the multiday nature. This strategy has a 45% win rate, meaning more trades close at a loss, but the advantageous risk-reward ratio makes it profitable. Yearly returns have been strong, especially in 2023, with a profit of $30,000. The performance in 2024 confirms the excellent results, even halfway through the year.
Using these two different strategies on the same asset shows the importance of portfolio diversification. Both strategies have their unique strengths and can contribute to overall portfolio performance. By employing both a multiday trend-following approach and an intraday mean-reverting strategy, traders can manage risks and capitalize on different market conditions.
