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