The Mid-Autumn Festival vs. Full Moon
Chinese people were celebrating their Mid-Autumn Festival on Thursday worldwide while the astronomy enthusiasts are going to observe the full moon tonight. But isn’t Mid-Autumn Festival supposed to happen on the day of full moon? Since many traders believe in the effect of the moon cycle on various financial markets. It is a good idea to look at this interesting discrepancy.
Full Moon Is An Exact Event
Officially, this full moon in September 2016 is supposed to happen on the 16th at 3:05 pm Eastern Time. But during day time we cannot really see the full moon hence when you observe the full moon tonight in North America, the actual full moon has already passed. On the other hand, the moon we got to observe last evening, was not yet the actual full moon, but close.
For Chinese people, their solar lunar calendar is based on a set of formulas created long time ago for the purpose of giving us accurate solar and lunar cycle information, without the help of computers. Since we cannot really have half a day or fractional day for normal human to function properly, calendars have to round up or down the moon cycle every month since each moon cycle is approximately 27.321 days. This leads to the labelling of the new moon and full moon in the Chinese calendar and other ancient calendar systems, being an approximation as well.
Time Window vs. Exact Event
I bring this topic up because many traders who believe in the lunar cycle effect on trading would pinpoint certain dates in the past being all important turning points. The truth is that such dates based on the exactly event like a full moon is actually quite ambiguous to interpret. First of all, for an event like full moon, since the exact event may not fall into the trading hours, the interpretation of the event becomes a time window of at least 2 trading days. That can represent 2 trading days that are sticking together on the calendar, or, in the case of the full moon event happening over the weekend where the 2 trading days are several calendar days apart.
This time window effect produces an obvious interpretation issue.One person would see the price dropping into the full moon and that a bottom is coming, while another person would see the price rising into the full moon and that a top is forming.
Trading Hours Impact
Assuming the lunar cycle has a strong effect on many markets, since the price swings cannot develop continuously due to trading hours constraint, the accumulated effects during the non-trading hours can distort the expected moves easily. For example, a swing low is expected but then the market gap much higher at open which can lead to a sell off first back down to the higher timeframe support.
So should this gap up and selloff be considered as a swing high formed and reversal from there with more downside in store?
Or a confirmed swing bottom in place that one should look for long only?
Even worse, as many traders who use lunar cycle successfully would point out, sometimes the markets do not reversal on such event and instead accelerate in the same direction. So how can we tell if it is a turn or an acceleration is coming. In other words, the extra information does not really help a trader in making good trading decision. They are just adding more confusions to the trading decision process.
Not Good for Day Trading
Hence as a day trader, maybe lunar cycle is just not precise enough as a market timing tool. Personally, I prefer keeping things simple – consistency and sound money management always give us an edge better than any elusive timing tools.
I am not saying using the lunar cycle as part of our analysis is wrong. I am saying that since lunar cycle is not precise enough, at best it is good for swing trading only. As a day trader we should not mix the timing method for daily chart with our day trading strategies. This problem can be summarized easily by the infamous trading axiom, picking a bottom (top) that never arrives.
Mooncake is Bad for Health
For those mooncake lovers, please skip this last part.
A regular mooncake made with white lotus paste and 2 yolks weights about 190 to 200 grams. The calories for one such mooncake is about 800 to 1200 calories depending on the manufacturer. But the real issue is the amount of cholesterol within one such tasty treat. Each mooncake contains about 150 to 200 percent of cholesterol based on the usual recommended daily intake (maximum) for an adult.
Wish Everyone a Happy Mid-Autumn Festival!