You can time the market.

[Redneck]

You don't need a backtest to notice you can game indicator values on past data to make it look "grailish",

Not going to debate whether mkt can be timed (read / deciphered / traded)

Indicators are based on PA - if indicators can be "gamed" as you say - then the PA was there to read / decipher / act upon - in the first place


RN

 

[cdcaveman]

When then trading guru pundits on CNBC say buy buy buy they typically are right but not because they know what they are talking about... The optionality for guys publicly calling the market is better to call for a rise then a fall....

 

[qxr1011]

Found an interesting piece. According to it, the method of timing the market is this: when the S&P 500 closes below its 300-day moving average, you sell. When it closes above its 300-day moving average, you buy.

There's a graph of S&P500 closing price vs its 300-day moving average, from 1997 to Aug 31, 2015.

https://imgur.com/n1SqSd0

That's right. It has closed STRONGLY below its 300 day moving average.

Thoughts?

you can time the market, but with that method

 

[kut2k2]

You don't need a backtest to notice you can game indicator values on past data to make it look "grailish", you just need intelligence and experience.

This is how most market vendors and indicator developers feed off the dumb and/or inexperienced, the OP is a classic example.

There's nothing about the SP500/300dma crossover that looks "grailish". But a backtest would reveal whether it was truly profitable long-term (newwurldmn indicates otherwise) and might even help reveal what the optimal MA crossover parameters would be. Untradeable info of course --you can't trade the past-- but perhaps useful in other ways.

 

[Autodidact]

Not going to debate whether mkt can be timed (read / deciphered / traded)

Indicators are based on PA - if indicators can be "gamed" as you say - then the PA was there to read / decipher / act upon - in the first place


RN

Yes, and who is debating

There's nothing about the SP500/300dma crossover that looks "grailish". But a backtest would reveal whether it was truly profitable long-term (newwurldmn indicates otherwise) and might even help reveal what the optimal MA crossover parameters would be. Untradeable info of course --you can't trade the past-- but perhaps useful in other ways.

You failing to follow, if I wanted, I could come up with a crossover that looks great, just to impress or fool.

 

[newwurldmn]

There's nothing about the SP500/300dma crossover that looks "grailish". But a backtest would reveal whether it was truly profitable long-term (newwurldmn indicates otherwise) and might even help reveal what the optimal MA crossover parameters would be. Untradeable info of course --you can't trade the past-- but perhaps useful in other ways.

I am amazed that no one challenged my backtest results. I reran it, this time simulating a portfolio that would generate compounding vs the arithmetic returns I did this AM.

The strategy outperformed over the last 85 years. I also ran it from 1995 to today. The strategy outperformed, but for vast periods it was significantly underperforming. The strategy only works if there is prolonged period of a down market. Otherwise it gets whipped around. Even with the outperformance (from 1995 to today it returned 4.5x initial investment vs 4x for the buy and hold), it's unclear if you would do better given the additional taxable events created and dividends you would forgo during your short periods.

If we rally back to the 300d MA in the next few weeks, this strategy will underperform this go around as well.

 

[kut2k2]

You failing to follow, if I wanted, I could come up with a crossover that looks great, just to impress or fool.

Yes, MA crossovers are crude tools, which is why their users get killed in chop. And most traders never get beyond the crude-tool stage, be it crossovers or breakouts. But with the right trading instrument(s) and some luck, even crude tools can get them to the finish line.

 

[Mtrader]

If you apply the 300 MA on the Nikkei from 1984 till today you will bearely break even (3.52% profit before slippage, commissions....). This proofs that the 300 MA is a bad system. A good system should not work on only one index, it should work on all indexes.
The 300 MA is optimized for the S&P, and in 5 years the best MA will maybe be 122 days. Don't understand why real traders work with MA's. I even know "traders" that optimize MA's every day.

 

[GarrettKimmel]

when i look at the graph, all I see is confirmation bias.

There are several crossings below the 300 MA line which haven't been followed by selloffs.

As others also said, you have to define 'strongly'. Otherwise you're still left with a nondeterministic algorithm for timing the market.

 

[stepandfetchit]

FYI: I back tested a simple start with $100K, and buy SPY when Close above 300 day SMA, and exit trade when Close below 300 day SMA, and show the results below. Note: If one were to actually consider such a trade, it would be wise to add some filter or hysteresis to prevent rapid whip-saws.

NumTrades=42, Total Wins= 14, SPY PnL= 219558.40,

Date Symbol Transaction Quantity Trade Price
8/31/1998 SPY Open 1609 62.14
8/31/1998 SPY Close -1609 96
9/9/1998 SPY Open 1499 103
9/9/1998 SPY Close -1499 100.5
9/17/1998 SPY Open 1457 103.44
9/17/1998 SPY Close -1457 102
9/30/1998 SPY Open 1444 102.88
9/30/1998 SPY Close -1444 101.75
2/25/2000 SPY Open 1387 105.97
2/25/2000 SPY Close -1387 133.33
4/14/2000 SPY Open 1358 136.13
4/14/2000 SPY Close -1358 136
10/6/2000 SPY Open 1312 140.75
10/6/2000 SPY Close -1312 141.06
11/8/2000 SPY Open 1295 142.95
11/8/2000 SPY Close -1295 140.56
5/19/2003 SPY Open 1919 94.88
5/19/2003 SPY Close -1919 92.65
8/6/2004 SPY Open 1896 93.76
8/6/2004 SPY Close -1896 106.85
8/12/2004 SPY Open 1869 108.38
8/12/2004 SPY Close -1869 106.98
10/25/2004 SPY Open 1846 108.3
10/25/2004 SPY Close -1846 109.86
4/15/2005 SPY Open 1818 111.54
4/15/2005 SPY Close -1818 114.15
4/20/2005 SPY Open 1799 115.41
4/20/2005 SPY Close -1799 113.8
4/28/2005 SPY Open 1764 116.01
4/28/2005 SPY Close -1764 114.2
10/12/2005 SPY Open 1741 115.75
10/12/2005 SPY Close -1741 117.5
10/18/2005 SPY Open 1724 118.67
10/18/2005 SPY Close -1724 117.82
10/20/2005 SPY Open 1695 119.78
10/20/2005 SPY Close -1695 117.67
10/27/2005 SPY Open 1663 119.96
10/27/2005 SPY Close -1663 118.1
6/12/2006 SPY Open 1639 119.8
6/12/2006 SPY Close -1639 123.99
6/19/2006 SPY Open 1612 126.12
6/19/2006 SPY Close -1612 123.67
6/27/2006 SPY Open 1594 125.01
6/27/2006 SPY Close -1594 123.91
7/13/2006 SPY Open 1584 124.75
7/13/2006 SPY Close -1584 124
7/20/2006 SPY Open 1562 125.69
7/20/2006 SPY Close -1562 124.83
11/12/2007 SPY Open 1545 126.21
11/12/2007 SPY Close -1545 143.7
11/19/2007 SPY Open 1499 148.08
11/19/2007 SPY Close -1499 143.76
12/17/2007 SPY Open 1465 147.13
12/17/2007 SPY Close -1465 145.07
12/31/2007 SPY Open 1448 146.8
12/31/2007 SPY Close -1448 146.21
8/17/2009 SPY Open 2108 100.44
8/17/2009 SPY Close -2108 98.31
6/29/2010 SPY Open 2091 99.09
6/29/2010 SPY Close -2091 104.21
8/19/2010 SPY Open 2034 107.16
8/19/2010 SPY Close -2034 107.88
8/4/2011 SPY Open 2023 108.46
8/4/2011 SPY Close -2023 120.26
10/25/2011 SPY Open 1938 125.49
10/25/2011 SPY Close -1938 123.05
11/1/2011 SPY Open 1854 128.63
11/1/2011 SPY Close -1854 122
11/9/2011 SPY Open 1792 126.25
11/9/2011 SPY Close -1792 123.16
11/16/2011 SPY Open 1742 126.66
11/16/2011 SPY Close -1742 124.08
12/8/2011 SPY Open 1713 126.22
12/8/2011 SPY Close -1713 123.95
12/12/2011 SPY Open 1684 126.05
12/12/2011 SPY Close -1684 124.21
12/28/2011 SPY Open 1655 126.39
12/28/2011 SPY Close -1655 124.83
12/30/2011 SPY Open 1638 126.12
12/30/2011 SPY Close -1638 125.5
6/1/2012 SPY Open 1613 127.5
6/1/2012 SPY Close -1613 128.16
8/20/2015 SPY Open 1566 131.97
8/20/2015 SPY Close -1566 204.01