Mean-Reverting Strategies on Gold Futures: Same Logic, Different Time Frame

by Andrea Unger

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Gold futures are characterized by high liquidity, which has increased sharply in recent years.

Thanks to this increase, Gold futures today also respond well to mean-reverting approaches, as demonstrated by the two strategies we present in this video.

They're two very similar strategies, whose only difference is the time frame used to calculate the entry trigger (5 minutes in one case and 15 minutes in the other).

Don't miss the video to find out:

- The impact of using different time frames on the same trading logic

- Which time frame works best 

- The rules and real performance of the two strategies

Enjoy! 😎

Transcription

Hey everyone, and welcome to our usual chat about the strategies in our portfolio that have performed the best over the past period.

Okay, so this week I want to talk to you about the gold market. These futures are one of the most important and certainly one of the most well-known.

And today, I want to introduce to you two mean-reverting strategies that try to enter, as they say, "against the trend", that is, against the basic movement of the market.

The main difference between the two strategies, which have a very similar trigger by the way, is determined by the timeframe.

So let's go and take a look at the very first strategy. It was developed on a 5-minute chart and, as in the following strategy that we're going to be seeing today, the positions are opened when a false breakout at the levels of the previous day's high and low occurs.

As in this case, you can see that the previous day’s high was at this level here.

And the market first broke through this level upward and then closed below the previous day's high. And that set the stage for a short entry.

Vice versa for the long trades. Here is a long trade. We can see that the previous day, the market made a low at this level.

Then here the market went below this level. And then it closed back above it in a subsequent bar. And here we have the conditions to open a long position.

This strategy was developed in 2017 and over time it has continued to work pretty well. So from more or less this point here, in this period, and you can see that in the following months, or rather in the following years in this case, because five years have passed since the date of the creation of this strategy, you can see that this strategy has done pretty well.

This mean-reverting logic isn’t the predominant feature in the gold market. However, above all in recent years, we've seen mean-reverting strategies respond very well to price movements in this market.

So, also for this underlying we can see that prices tend to move back towards the average and this, of course, had led to gains in this strategy.

So this is an intraday strategy, which means that all positions are closed by the end of the session at the latest.

Okay, let's move on to the next strategy that we want to show you today. It is pretty much based on the same concept, but in this case, the false breakout is calculated on a secondary data series that we see in the chart below, namely the 15-minute.

So, we'll enter the market when a false breakout occurs in the 15-minute time frame.

The concept is the same as the previous strategy. But in this case, since we wait for 15-minute bars to close, instead of 5-minute bar closes, fewer signals are obviously generated and so we have fewer entries.

In this case, that wouldn’t have been a good thing. On the contrary, working on 5-minute bars instead of 15, especially in the years between 2019 and 2021, would have led this strategy to earn more. And we saw this in the previous strategy.

But again, in the last period, in the previous year and a half, this strategy has resumed performing well, in the way we were all used to see, and has also reached its equity peaks.

So yeah, I mean, this is further proof that, even on more extended time frames, the strategy has performed quite well. It is true that it performs worse than the previous one. However, right now, it is at the equity peaks and that is certainly good.

Because I mean, you know, it kind of confirms the assumption that thanks to the surge in liquidity that has occurred in the gold market recently, because this future has actually become really very liquid…Thanks to this surge in liquidity, to this change in the market, mean-reverting approaches are likely to come back into play. Which is good news!

So, guys, go and give it a try too! And these strategies are really easy to code!

And if you're interested in the world of systematic trading, please go and click on the link in the description. From there, you can access a free presentation by Andrea Unger, or you can go and get our best-selling book by simply paying the shipping costs, or even book a free call with a member of our team.

Also please leave us a Like if you enjoyed the video, subscribe to our channel, and go and click the notification bell to stay updated on the release of all our new content.

And with that, we will see you again soon in our next video! Thanks for watching, bye-bye!

Need More Help? Book Your FREE Strategy Session With Our Team Today!

We’ll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.

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Andrea Unger

Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.

I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems. 

In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.

Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.

Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.