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« Investment Profits from Understanding Government | Main | Weighing the Week Ahead: From One Crisis to Another »

July 01, 2011

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Dan

I have never used the 200 day MA. I know a lot of traders that have and have a lot of success with it. The market seems to know our every move so I am looking at the 200 day MA for longer term trades. anyone read The Naked Trader.

eztrader.com

The strategies are divided into groups that vertical differences, differences in Delta, credit spreads and credit spreads. Different strategies for different markets. For example, a horse or a strategy of vertical propagation strangling be used to your advantage in a market is bullish or bearish. Again, a ratio spread is a practical strategy for a market to go sideways.

oldprof

Proteus -- Thanks for the pointer. I'll have to take a look. We do a lot of systems testing of our own, but that is more specialized.

Helpful for all of us ----

Jeff

Proteus

I think one needs to be careful in assuming that any moving average system will beat a buy and hold. David Aronson, in his book Evidence-Based Technical Analysis, shows pretty compelling calculations that the historical outperformance of indicators like the 200 day MA is due to data mining. Now, maybe he´s wrong, but clearly any effectiveness of these MA systems is declining as more people use them. Using a MA system to avoid a large loss may be a good idea, but expecting market-beating performance is iffy.

The book is a pretty good read, and the math and ideas about validating indicators are not too complex if you have some statistics training.

oldprof

Keith -- I think the system probably works fine in the long run, but you have to accept the loss when the direction changes quickly. It is designed to keep you in (or out) for the big moves, so you must keep that in mind.

I also got some emails about Meb's approach, which avoids the exact 200-day rule followed by others.

Thanks for pointing this out.

Jeff

oldprof

Ian - That certainly would have worked better this time than those trading daily with the EMA. I think we can both imagine situations where it might not work as well.

Meanwhile, I agree that avoiding the most popular method seems wise!

Thanks for the suggestion.

Jeff

Keith Piccirillo

Babak at Traders Narrative has written about it and Meb Faber uses the 200 as part of his timing strategies as well.
If so many mechanized systems use it for long term decisions, what causes it to stop working? Major drawdowns are the effect of forced liquidations.
Short term, Ken Heebner seems to have traded AAPL poorly by selling a large position too early and then buying back in.

Ian

An even better rule: trade only once a month with the 200-day MA rule. In this case, you would have waited to see if AAPL closed the month below the 200-day and would not have sold at all.

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