Should You Buy and Sell at the 200-Day Moving Average?
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- Опубликовано: 7 фев 2019
- Josh here - Michael and I discuss one of our very favorite topics on today's Live From The Compound - should you buy and sell when the market crosses above or below the 200-day moving average?
As in most market-related questions, the answer is yes, maybe, but maybe not. As we'll explain, while there are tactical benefits to using this trend line (or any trend line) as a guide, there are environments in which it acts perfectly, and then environments where it does nothing or even hurts you.
And then, of course, there are all the psychological reasons why this discipline cannot be adhered to by most (any?) investors.
Michael shows that by missing the worst days in the market, which typically occur when the S&P 500 is below its 200-day moving average, you will also miss the best days. And by missing the 25 best days of the market over the last 20 years, an investor's returns would become indistinguishable from simply taking no risk and investing in five-year Treasury bonds.
All the charts in this video can also be found at Michael's epic new post, "Miss the Worst Days, Miss the Best Days" below:
theirrelevantinvestor.com/201...
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i was playing around with this. same with the 21 month on an even larger timeframe. the thing that bugs me about either is #1 it requires perfect execution. #2 you can get whipsawed and if you leave a larger window like 1% either way before you buy/sell you start eating into the return. long term DCA the spy or ivv is hard to beat when you add in tax and ease of execution. not hard to make an argument that a person should be adding all they can if they market is under the 200d sma. look at all the hits since y2k and going forward you were greatly rewarded
This is why you also use the 20MA. While markets are below the 200, buy when it crosses the 20MA. In this case, the 20MA should be moving up towards the 200ma which would be resistance
This has a Vanguard Life Strategy wrapper written all over it
The real issue with a 200sma strategy is that the historical data doesn't give us a statistically viable sample size. The market doesn't cross the 200sma often enough. For that reason, even though a backtest produces improved results over a buy-and-hold (ignoring taxes and frictional costs), this has essentially no predictive power. Going forward it could be nothing but 2015-, 2016-, 2019-style whipsaws -- or at least enough to set you far enough back that the strategy no longer outperforms.
Apply the 200 daily average to SPX but execute the trades with 3x leveraged UPRO (or 2x SSO) and this strategy becomes much more attractive. The bug bear of leveraged ETFs is volatility, an effect which is magnified tremendously under the 200 sma. When the market is above the 200, volatility tends to be low and consecutive daily positive returns on SPX are much more likely, an environment is tailor made for things like UPRO.
Hi fellas, I like this analysis as I have run similar tests. Agree with Michael. Best used in a strategic asset allocation approach bc in bull markets it lags and 2011,2015,2018 make you look stupid. I like Meb's idea of trading monthly and including other markets.
A nice reality check on trading trends. Tax and costs of trades as well as (in some cases) dividends foregone?
There are some ETFs out there that do exactly this.
Old video...but really enjoyed! Could we have more, please.
learned much ... thank you.
Do some research on using the 20/200ma crossover to pick trend. And instead of using the Daily chart use 4hr, 1hr or 15 min. Buying AMD at the 200 day would have been a great return over the past month. 25% returns.
I can ASSURE you, behaviorally individuals cannot stick to this. It sounds like you both feel the same. Buy quality and do what you do for a career well. Then consistently save and invest money for a long time. Wealth takes time. Can’t outwit the market. I have countless stories of people that thought they could. Plus as you point out the expense to run this strategy, I’d add the waste of mental bandwidth for the average person that should be focusing on what they do for a living and trying to be the best at it.
WHAT ABOUT IF 200 MA IS POINTING UP OR DOWN WHEN PRICE GETS ABOVE OR BELOW
Daily charts or weekly? Just wondering…cause…
The thing about this is you're not taking into account the use of the volatility index to time as well.
2019 has been actually a brutal year for MA trading strategies on a monthly basis.
How so Ken?
@@ericsimphiwe9855 Volatility I would imagine.
Batnick says he doesnt think the 200 is the best ma - which one does he think is the best?
or one(s)
I believe he thinks that shorter term MA or EMA works better since it’s able to catch on to trends quicker.
Love the videos! #nowshowjapan
43% up last yr, 23% up this yr
HAIR!
I will never understand why an investor would need these kind of tricks to reduce drawdowns when he could simply reduce the percentage of his portfolio allocated into stocks and just buy&hold&rebalance.
Syncme Android
MA are for technical traders not for long term fundamental investors, so yes you’re right but your advice only applies to long term bottom up fundamental investors.
@@RomilCPatel it depends, a short term moving average might be of some use for daily/weekly traders, but a 200 day MA (or a 1 year using month end dates) is used by long term investors too. It usually underperforms buy&hold on the long run, but it also reduces risk. Meb Faber is a big advocate of the 12 months MA strategy even if it went out of fashion yers ago because of the huge underperformance of the strategy compared to the buy&hold during the last 10 years bull. If the market will sink because of this virus the 12 months MA might come back soon to its former glory (like in 2000-2003 and 2007-2009).
Of coarse, the market is 200ma. Every pair
Lol yes that is a technical term
I was watching until you felt the need to use expletives. Totally unnecessary !