I appreciate the reply, but I'm a true systematic trader so rules need to be black & white. Otherwise you can always say "I wouldn't take that trade" in hindsight. So the filter is 1.5% or greater below the 40MA, but what's a "few times"? You could have a very lagging exit if you require multiple closes below a 40-month MA. Have you ever backtested your results going back to the 1980s (or further) and compared with buy and hold?
Looking Back at 2018 Market Performance
- Thread starter jeffalvinson
- Start date
I appreciate the reply, but I'm a true systematic trader so rules need to be black & white. Otherwise you can always say "I wouldn't take that trade" in hindsight. So the filter is 1.5% or greater below the 40MA, but what's a "few times"? You could have a very lagging exit if you require multiple closes below a 40-month MA. Have you ever backtested your results going back to the 1980s (or further) and compared with buy and hold?
No Multiple closes, that is not what I meant!
When a said "a few times," I was referring to myself mentioning that the monthly candle
must close below the 40ma "definitely"! I mentioned the word "definitely" a few times in this thread.
I started learning this in the 1980's and using it realtime thereafter with my 401k.
It has saved a ton of draw downs, heartbreak, and ulcers in bear markets.
The weakness with the method is:
"Wouldn't it be nice to re-enter at the bottom of a bear market, instead of several hundred points above the bottom waiting for a close above the 20ma?"
This re-entry dilemma has been a side project studied since the early 1980's since the beginning.
First off these 40ma bear cycles are far and few in between. Even studying, testing and actually executing this since for decades, only gives one a few cycles.
My final thought on re-entry:
Fibonacci -45% to -50% from the highest high, would have worked well for re-entry in place of a moving average entry point in all bear market recoveries.
Notice below the correlation between the stock market (SP500) and the VIX index.
The SP500 has been in a 3 month short to intermediate term Downtrend:
[SP500, 3 months, daily candles, 50ma]
--------------------------------------------------------------------------------------------------
The VIX index has been in a short to intermediate term Uptrend:
[VIX, 3 months, daily candles, 50ma]
The SP500 has been in a 3 month short to intermediate term Downtrend:
[SP500, 3 months, daily candles, 50ma]
--------------------------------------------------------------------------------------------------
The VIX index has been in a short to intermediate term Uptrend:
[VIX, 3 months, daily candles, 50ma]
The charts below are a perfect example why I use a closing monthly candle below the 40ma
before declaring a bear market and bailing out of long term equity investments.
This first chart is a 3 year chart of SP500, monthly candles, 40ma, but I have
this chart deliberately stop on Dec 24, 2018, with only 4 trading left in 2018.
Notice that the Dec candle is below the 40ma "but" there is still 4 days left before the Dec monthly close.
[SP500, 3 years stopping on Dec 24, 2008, monthly candles, 40ma]
--------------------------------------------------------------------------------------------------
This second chart is the same as above except that it completes the entire month of December to Dec 31st 2018. Notice the big bounce in the last 4 days of December.
Mutual fund managers, money managers and institutional investors control approx.
85 cents of every dollar of every major stock. If you think for a minute the Big Boys
do not follow this moving average, you need to then ask yourself why did it bounce
at the monthly candle 40ma?. Why there?]
[SP500, 3 years stopping on Dec 31, 2008, monthly candles, 40ma]
--------------------------------------------------------------------------------------------------
The final chart is the current chart including up to date Jan 4, 2019.
So far, 2019 looks like decent follow through from the hail Mary save in the last week
in Dec 2018. But this chart can't predict the future, it can only tell us what didn't happen
in 2018. Its possible to get a repeat of Jan 2016 and Feb 2016 (first 2 candles on the
far left of this chart below), but who knows for sure?
[SP500, 3 years, monthly candles, 40ma]
before declaring a bear market and bailing out of long term equity investments.
This first chart is a 3 year chart of SP500, monthly candles, 40ma, but I have
this chart deliberately stop on Dec 24, 2018, with only 4 trading left in 2018.
Notice that the Dec candle is below the 40ma "but" there is still 4 days left before the Dec monthly close.
[SP500, 3 years stopping on Dec 24, 2008, monthly candles, 40ma]
--------------------------------------------------------------------------------------------------
This second chart is the same as above except that it completes the entire month of December to Dec 31st 2018. Notice the big bounce in the last 4 days of December.
Mutual fund managers, money managers and institutional investors control approx.
85 cents of every dollar of every major stock. If you think for a minute the Big Boys
do not follow this moving average, you need to then ask yourself why did it bounce
at the monthly candle 40ma?. Why there?]
[SP500, 3 years stopping on Dec 31, 2008, monthly candles, 40ma]
--------------------------------------------------------------------------------------------------
The final chart is the current chart including up to date Jan 4, 2019.
So far, 2019 looks like decent follow through from the hail Mary save in the last week
in Dec 2018. But this chart can't predict the future, it can only tell us what didn't happen
in 2018. Its possible to get a repeat of Jan 2016 and Feb 2016 (first 2 candles on the
far left of this chart below), but who knows for sure?
[SP500, 3 years, monthly candles, 40ma]
First of all, I greatly appreciate you sticking up for your viewpoint in a constructive manner.
There are two options to your assertions that closing candles are useful:
1. You know that 85% of money is controlled by the big boys, and you also know that they are the cause of the bounce off the MA
2. Other people follow the MA
(I'll also add a third: the 40 month MA is a model of market memory)
In neither case does closing candle make a difference but somehow you know what people do. In this case, closing candles don't matter either. All I'm saying is that charts are useful just to show you what has been happening and what patterns you may be able to rely on rhyming. The actual close is just noise in that case.
There are two options to your assertions that closing candles are useful:
1. You know that 85% of money is controlled by the big boys, and you also know that they are the cause of the bounce off the MA
2. Other people follow the MA
(I'll also add a third: the 40 month MA is a model of market memory)
In neither case does closing candle make a difference but somehow you know what people do. In this case, closing candles don't matter either. All I'm saying is that charts are useful just to show you what has been happening and what patterns you may be able to rely on rhyming. The actual close is just noise in that case.
I appreciate your comments and point of view.
Please keep on eye on this indicator at the end of each month and if you see a monthly closing candle definitely (-1.5% or greater) below the 40ma, please observe what occurs
thereafter.
Only if you are long SPY only. If you can go long/short, timing might work better. NOT a prediction.%%
Could work long term for SPY;
as far as long term SPY, looks like hold + gets dividends works better.NOT a prediction.That 40 month moving average is pretty good on commissions LOL-true
So my questions are:
1. What is so significant about 40 ma? Why not 50 ma, 30 ma...?
2. If this is not a good signal for intraday, or intermediate but a bet on long term trend, how do I use this to trade?
Regards,
1: My knowledge of the monthly 40ma is based on decades of reading periodicals about stock market timing, long before there was an internet and PC's.
Yes, there was a dark period in history when you had to call your broker to make an investment change, or fill out a buy or sell request form and actually mail it in, or actually walk into your brokers office!
Back then my investment information came from the Wall Street Journal, Investors Business Daily, Advisory Letters, Timer Digest....etc...
By doing a bit of "all of the above," I found that one of the more successful market timers
used the monthly 40ma.
Through the years I have tested and actually used the monthly 20ma and 40ma.
The monthly 40ma produces the least amount of fake-outs if your monthly close is at least -1.5% or greater below the 40ma.
2: This method is not for trading. Its not useful for short to intermediate term trading. It is only good for very long term investing.
Thank you. I never tested time frame longer than 200 days ma and so found used ma as a trading signal created too many of what you call fake-outs.
Just eyeball SPY and the 40 ma, I can see that using it as a entry and exit could produce better results than buy and hold. But we are talking about trading once every few years! The next few months will tell if I should do something with my long term holdings!
I learned something new here.
Regards,