In analyzing how technical tools have performed in analyzing SPY during the recent europanic, I left out the 200-day moving average, the true love of the long-term technical trader.
SPY gave a bull signal on June 1, 2009 by trading entirely above the 200-day moving average. The theoretical entry price, at open, would be $93.67. The exit signal came last Thursday, May 20, at $109.38, as SPY traded entirely below the 200-day moving average.
Net gain: 16.8%
You know, it sounds OK, and is OK as an annual yield. But when compared to the shorter-term strategies, that produced yields of more than 40% in the span of just a few months, the long-term play just sinks to insignificance.
See my earlier posting on "The Limits of Technical Analysis".
Long-term strategies, such as the 200-day moving average, are a good way to trade money that's in a 401(k) with limits on trading frequency, and it's fine for people who have zero-time to do much with the market, or who just don't have an interest in really active management.
But backtesting shows, short-term, properly executed, is a better way to make a buck.
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