The Controversy of Moon Phase Trading

Do you know about the Moon Phase indicator? This strategy is surrounded by controversy. What is the actual working principle of this indicator?

The world of trading has many theories for interpreting price movements. However, not all of these theories are based on statistical data. One of them is Moon Phase Trading.

The name of the Moon Phase indicator may not be too familiar to some traders. This is because this trading technique is still controversial among observers. As the name suggests, this indicator helps traders analyze the markets based on the phase of the moon. Some consider this indicator easy to understand, while others consider the Moon Phase indicator less accurate because of the underlying element of superstition.

Despite the controversy surrounding this indicator, it cannot be denied that Moon or Lunar phases have an interesting idea in trading analysis. What are the details?

Unravelling Moon Phase Trading

Moon Phase, or Lunar Cycle, is a trading concept that uses an indicator based on the moon's movement. According to this theory, asset prices change with the different phases of the moon.

It is believed that prices rise during a full moon, and this increase ends during the new moon. Conversely, asset prices will decrease after a full moon and when forming a new moon.

This indicator can also be used with the Hijri calendar since it follows the moon's movement. In this case, dates 1 to 15 are considered suitable for short (sell) trading, while dates 15 to 30 are suitable for long (buy) trading.

So, how do you use Moon Phase Trading? First, the trader must analyze historical data in the market. This is useful for identifying patterns or trends that align with the moon phase.

Fortunately, some trading platforms now provide Moon Phase indicators in their features. This is roughly what the EUR/USD chart looks like with the help of the Moon Phase indicator.

The above chart shows two circles: a bright circle indicating a full moon and a dark circle indicating a new moon. Traders can open a buying position when the price chart approaches the full moon. Conversely, traders can sell their assets when the price approaches the new moon. Nevertheless, it is essential to note that these indications are only recommendations, and trading outcomes obtained from Moon Phase indicator signals may not be entirely accurate.

Why is Moon Phase Controversial?

There is a lot of debate surrounding Moon Phase Trading. Many experts consider this strategy to be inaccurate because it does not have a strong scientific basis. There is no clear evidence that moon phases are related to market price movements.

Traders who depend on the Moon Phase indicator are often overly confident without much evidence to back it up. Until now, no trading performance with a proven track record utilizes this indicator. As a result, the Moon Phase indicator is deemed less reliable than other technical indicators that can generate more precise trading signals.

Nevertheless, research conducted by the University of Basel found that Moon Phase can profit traders a lot. At that time, researchers studied the performance of more than 90 companies listed on the Swiss Exchange for three years. The study covered several factors, including moon cycles to daily stock market movements. The study concluded that traders should consider the moon phase when formulating strategies. Despite the controversies, Moon Phase also has its advantages and disadvantages.

Advantages of Moon Phase Trading

Moon Phase Trading has proven to benefit traders in several situations. It's no wonder that this indicator has loyal followers. What are the benefits of this indicator?

• Predicts Price Movements
  Despite being questioned by some experts, the Moon Phase indicator can assist traders in predicting price movements due to its simplistic appearance and ease of comprehension by various traders. As a result, some traders still rely on Moon Phase Trading to predict price movements.
  
  
• Helpful for Swing Traders
  Swing Traders who typically open positions from the highest or lowest Swing price can benefit from using the Moon Phase Trading indicator. This tool can assist traders using a swing trading strategy to identify find opportunities to make a profit.
  
  
• Finding the Best Selling Position
  If traders aim to sell an asset, they can use Moon Phase Trading. Based on the Moon Phase indication, they can open a position between the 1st to 15th of each month.

Disadvantages of Moon Phase Trading

Although Moon Phase Trading has some advantages for certain traders, it has several drawbacks.

• Disregards Supply and Demand
  Despite some benefits for certain traders, Moon Phase Trading has several drawbacks. One of them is that many experts believe the Moon Phase indicator is formed from mere coincidence. This means that the indicator is not based on supply and demand like other indicators, making it difficult for traders to determine the strength of price changes. Furthermore, traders cannot identify overbought or oversold conditions in the trading instrument, resulting in inaccurate analyses of their trading positions.
  
  
• Asset Prices are Prone to Change During the Full Moon Phase
  Moon Phase Trading heavily depends on the moon phase. It is important to remember that the full moon phase lasts for three days and not just on the 15th day. As a result, those who use this indicator must be astute in determining the optimal time to purchase assets during those three days. Conversely, there is a chance that asset prices may unexpectedly decline within that same period. Consequently, traders may fail to attain profits simply because they did not account for other factors.
  
  
• Profit Ratio Depends on Market Trends
  The profit potential is high during a bullish trend but decreases during a bearish trend, which makes the Moon Phase indicator less versatile for many traders. Therefore, traders must carefully consider the market trend conditions to achieve their desired trading results.
  
  
• Accuracy Depends on Asset Type
  The level of accuracy of the Moon Phase indicator is greatly impacted by the asset type being traded. For instance, forex assets react differently than cryptocurrencies when responding to moon movements. Each has distinct factors that can influence price fluctuations. Furthermore, forex is significantly influenced by fundamental factors like central bank policies, which are not made based on moon phases.
  
  
• Not Suitable for Day Trading and Scalping
  The validity of Moon Phase Trading is limited to two weeks, covering both the full moon to the new moon and vice versa. Consequently, this characteristic makes Moon Phase conditions unsuitable for day trading and scalping strategies, as both require traders to close positions within a day.

Closing Statement

Despite all the controversy surrounding it, the Moon Phase indicator has some benefits for traders. This indicator should not be used as the main indicator but rather as a complement. To ensure accurate trading results, use other supporting indicators such as price action, RSI, Stochastic Oscillator, etc. With additional indicators, traders can get more accurate trading signals.