Intermarket Trading Strategies

11

A Comparison of Fourteen Technical Systems for Trading Gold

The market always does what it should do, but not always when.

-Joseph D. Goodman

 

I presented in Chapter 9 many different intermarket indicators that can be useful in developing trading systems. But which one has the best predictive capacity and which intermarket securities should one use for trading gold? Only testing can reveal the winner.

11.1 TEST SPECIFICATIONS

All single divergence indicators were tested using the Philadelphia Gold & Silver Mining Index (XAU) and the dollar index (DXY) separately in order to evaluate the best performing indicator and intermarket security at the same time. Double and multiple divergence indicators used the XAU-dollar index and XAU-silver-dollar index combinations respectively.

I used the gold ETF (GLD) instead of gold futures as not all investors or traders have a futures account. Unfortunately, the gold ETF started trading in the NYSE in November 2004. For this reason, for the time period that the GLD was not in existence (from January 1992 to November 2004) I used gold spot prices (after dividing them by 10) to create a “tradeable proxy”. I then used MetaStock’s downloader to join the proxy and actual GLD prices into one long continuous file of gold prices stretching from 1992 to 2007. Similarly, I joined the World Silver Index prices (after multiplying them by 10) with the SLV. Daily pricing data were obtained from Telechart after exporting them to MetaStock.

The test results ...