Roundup: Trading the Golden Cross

15Jul10

This is a roundup of our most important posts talking about the Golden Cross (aka 50/200-day moving average crossovers).

>> Trading the Golden Cross

Test of a basic Golden Cross strategy: long when the 50-day moving average crosses over the 200-day, and to cash when it crosses below.

Conclusion: longer-term MA crossover strategies like these haven’t been so good for producing outsized returns, but they have done a fairly good job protecting investors from protracted downturns.

>> The Death Cross

Looks at what happens when the 50-day moving average falls below the 200-day, aka the “Death Cross”.

Conclusion: the market has eked out small gains following the Death Cross but also exhibited a lot more downside risk. Longer-term investors should heed the warning.

>> SMA vs EMA

Test of two equally popular ways of calling the Golden Cross, using either a simple moving average (SMA) or exponential moving average (EMA).

Conclusion: there hasn’t been enough of a difference between the two variations to get worked up over. Both are equally effective.

>> Daily vs Weekly vs Monthly

Looks at another variation on the Golden Cross: trading weekly or monthly (rather than daily).

Conclusion: the difference here too has been too small to get worked up over. Daily is (in my opinion) psychologically easier to trade, but weekly/monthly is simpler.

>> Other Moving Average Combinations

Compares other moving average combinations (besides just 50/200-days).

Conclusion: there is a cluster of moving average combinations that have performed so similarly that any one is as good as any other.

>> Uptrending Crossovers

A look at trading the Golden Cross only when the moving averages are rising.

Conclusion: all variations tested either had no impact or hurt performance. The Cross is bullish regardless of whether the moving averages are rising or falling.

Happy Trading,
ms

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