Trading the Moon, Mechanically

Trading the Moon, Mechanically

Why on Earth would anyone want to trade moon cycles?

Trader 1: Because there is no stock market on Mars!
Trader 2: Because trading the Jupiter cycle would be too boring!

Attempts at jokes aside, frankly it’s beyond me why anyone would think that distant celestial bodies actually have an effect on the behavior of stock market participants. After all, if you like trend lines and you draw enough of them on a chart, some of them are bound to hit some turning points. The same thing with cycles of planetary motion – if you consider enough planets, moons, cycles and degrees from Jupiter, etc., you’re bound to find some correlations.

The thing is that for the past 20 years or so, if you had bought on the full moon, held for approximately two weeks, sold on the new moon, and then sat out of the market for the next 2 weeks until the next full moon, you would have approximately matched the broader stock market’s return (or handily have beat it depending on your starting date), and for now there are no signs of that trend abating. When you consider that the “moon strategy” produced those returns with markedly less drawdown and about half the exposure, well my stargazing friends, grab your telescopes because that deserves a closer look!

On WealthSignals, Moon Phaser employs the Nasdaq 100 triple-Qs (QQQ) as its trading vehicle. Nonetheless, you can elect to trade any broader-market ETF proxy that you prefer in a live account: QQQ, SPY (S&P 500), IWD (Russell 1000 Value), IWN (Russell 2000 Value). We’re all aware that it’s plain easier to continue trading a strategy if your equity isn’t taking big hits only to have to recover to attain the level already achieved. In the case of SPY, the 2008 bear market drawdown for buy & hold was over (56%). Compare that to less than (35%) for SPY or IWD trading the moon cycle. And for those who can handle significant risk, blast off with QLD or SSO (2x QQQ or 2x SPY, respectively). Their moon-phase drawdowns compare favorably with trading their “1x” counterparts but produced significantly greater returns.

Check out the chart below that compares hypothetical Moon Phaser returns of $100K starting capital and re-investing 100% of equity and dividends (no commissions or taxes) for QQQ, QLD, and TQQQ (3x QQQ) since 1 March 2010, the session after TQQQ was first introduced to the market – and as chance would have it, the day of a full moon! From that starting date, buy and hold (B&H) turns out to be the mildly better strategy in terms of annual returns (APR), but the Moon Phaser strategy was able capture the lion share of gain with half the exposure and significantly less drawdown.

Moon Phaser captures up to 96% of market gain with significantly less drawdown and half the exposure of Buy & Hold

Moon Phaser captures up to 96% of market gain with significantly less drawdown and half the exposure of Buy & Hold.

Considering that leveraged ETFs are generally meant to be used as short-term trading vehicle and not as buy & hold instruments, employing them with a strategy like Moon Phaser to a small portfolio allocation looks attractive. Another trading option is, well, [in-the-money] options – but for now we’ll just let that idea simmer in the cosmos.

Have we mentioned that you’re sitting in cash about half of the time while howling at – I mean trading – the moon? (We did since that’s what meant by 50% exposure.) Sometimes holding cash is a good strategy; sometimes you’re left holding the bag while the rocket ship leaves orbit. And, other times it’s what you do with that cash that can make a difference. We don’t recommend allocating an entire portfolio to only one trading strategy or instrument, consequently Moon Phaser provides the flexibility to employ unused cash in other short-term, swing trading strategies.

Let’s recap: Moon Phaser…

  • is the oldest strategy on WealthSignals – more than 16 years since its appearance on
  • has returned 10.7% annualized in the out-of-sample WealthSignals test period.
  • produces similar gains as buy and hold with far less drawdown and exposure
  • is very easy to trade: only 2 signals approximately every 4 weeks.

Even if you don’t actually trade the moon cycles, sign up for Moon Phaser signals anyway. If you’re sitting on the discretionary trading fence for whether to buy or sell, maybe the tidal forces can bump you one way or the other!

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WealthSignals™ information is based on hypothetical performance results which have certain limitations. They do not represent actual trading and therefore do not have financial risk. Any interpretation of data presented that leads to an investment is at your own risk and WealthSignals™ or its affiliates will not be responsible for any losses that occur from such investments. Past performance is no guarantee of future returns.