"Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

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Rowan Oak
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"Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Rowan Oak »

Investors need to be careful about blindly following any rule that gets them out of the market.
https://www.bloomberg.com/view/articles ... ell-stocks
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Doc »

I use a price below a 100 day moving average as a buy signal not a sell signal which is what the article implies. (The article mentions 200 day.)
Traders and investors pay close attention to this key technical level as a market timing signal to get out of stocks before the onset of a large downturn.

But I don't do it blindly. I use the drop below the moving average as an alert to see where my AA is.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by snarlyjack »

I totality agree that using the 200 ma as a entry/exit signal
is not a good idea... :oops:
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by willthrill81 »

This doesn’t mean the 200-day moving average doesn’t work. It just means that investors need to recalibrate their expectations when using these types of risk-management tools. If there were signals that got you out every time stocks fell, everyone would use them.

There are no silver bullets in the stock market.
I entirely agree. There will be many false positive sell signals if one is using the 200 DMA. The majority of one's trades will probably turn out to be so. But over the long-haul, this strategy has shown itself to significantly improve risk-adjusted returns. And for many of us, there are no trading costs for doing so.

Trend following is much more about avoiding downside risk than increasing returns.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by nisiprius »

willthrill81 wrote: Tue Apr 10, 2018 3:36 pm...I entirely agree. There will be many false positive sell signals if one is using the 200 DMA. The majority of one's trades will probably turn out to be so. But over the long-haul, this strategy has shown itself to significantly improve risk-adjusted returns. And for many of us, there are no trading costs for doing so.

Trend following is much more about avoiding downside risk than increasing returns...
So, just to be clear. You are suggesting that you should use the 200-Day moving average a sell signal--accepting the fact that there will be false positives, and not expecting miracles, because, false positives and all, it you think will still be an improvement. Correct?

I'd also point out that unless you are at 100% stocks, improvement is improvement. You can always those to take that improvement either in the form of "same return, less risk" or "same risk, more return." The choice is yours. If you can reduce the risk of 60/40 portfolio without reducing return, then you could alternatively increase the stock allocation until the risk is the same as before perhaps to 70/30--and and get "same risk, more return."
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

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willthrill81 wrote: Tue Apr 10, 2018 3:36 pm Trend following is much more about avoiding downside risk than increasing returns.
I have a friend who uses trend following and this is exactly why he uses it.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Doc »

willthrill81 wrote: Tue Apr 10, 2018 3:36 pm I entirely agree. There will be many false positive sell signals if one is using the 200 DMA. The majority of one's trades will probably turn out to be so. But over the long-haul, this strategy has shown itself to significantly improve risk-adjusted returns. And for many of us, there are no trading costs for doing so.
This approach seems to be in conflict with the generally accepted concert on this board of maintaining one's AA. If you sell equities when stocks drop you are moving away from your AA not rebalancing towards it.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by HomerJ »

willthrill81 wrote: Tue Apr 10, 2018 3:36 pmTrend following is much more about avoiding downside risk than increasing returns.
You know that 10% historical long-term stock market return? It INCLUDES the crashes.

You didn't need to avoid the crashes in the past to make a very good return and become wealthy.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by willthrill81 »

nisiprius wrote: Tue Apr 10, 2018 3:44 pm
willthrill81 wrote: Tue Apr 10, 2018 3:36 pm...I entirely agree. There will be many false positive sell signals if one is using the 200 DMA. The majority of one's trades will probably turn out to be so. But over the long-haul, this strategy has shown itself to significantly improve risk-adjusted returns. And for many of us, there are no trading costs for doing so.

Trend following is much more about avoiding downside risk than increasing returns...
So, just to be clear. You are suggesting that you should use the 200-Day moving average a sell signal--accepting the fact that there will be false positives, and not expecting miracles, because, false positives and all, it you think will still be an improvement. Correct?
I'm not suggesting that anyone do anything, but yes, I do not expect miracles from using any trend following strategy. There have been periods where buy-and-hold outperformed, periods where trend following outperformed, and periods where there was no clear winner. It seems that trend following tends to 'smooth out' returns compared to buy-and-hold.
Doc wrote: Tue Apr 10, 2018 3:49 pm
willthrill81 wrote: Tue Apr 10, 2018 3:36 pm I entirely agree. There will be many false positive sell signals if one is using the 200 DMA. The majority of one's trades will probably turn out to be so. But over the long-haul, this strategy has shown itself to significantly improve risk-adjusted returns. And for many of us, there are no trading costs for doing so.
This approach seems to be in conflict with the generally accepted concert on this board of maintaining one's AA. If you sell equities when stocks drop you are moving away from your AA not rebalancing towards it.
Yes, but I'm not a dyed-in-the-wool BH either.
HomerJ wrote: Tue Apr 10, 2018 3:52 pm
willthrill81 wrote: Tue Apr 10, 2018 3:36 pmTrend following is much more about avoiding downside risk than increasing returns.
You know that 10% historical long-term stock market return? It INCLUDES the crashes.

You didn't need to avoid the crashes in the past to make a very good return and become wealthy.
Yes, but if I can use a method that will help to minimize my downside risk without sacrificing long-term returns or increasing my costs, I see little reason not to.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by nisiprius »

Willthrill81, why did you elect to take the improvement in the form of "same return, less risk" rather than in the form of "same risk, more return?"
Last edited by nisiprius on Tue Apr 10, 2018 4:32 pm, edited 1 time in total.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Doc »

willthrill81 wrote: Tue Apr 10, 2018 4:01 pm Yes, but I'm not a dyed-in-the-wool BH either.
Neither is Larry Swedroe.

“Rebalancing, or the process of restoring a portfolio to its original composition, is integral to the winning investment strategy. It requires you to buy what has done relatively poorly (at relatively low valuations) and sell what has done relatively well (at relatively high valuations).” – Larry Swedroe

Quoted by Ben Carlson in http://awealthofcommonsense.com/2014/03 ... cing-rule/

From the same article
Ben Carlson wrote: The reason this works out well is you would be selling an asset that has risen in price (bonds) to buy an asset that has fallen in price (stocks) to take advantage of mean reversion. You are also practicing the age old investment maxim of buying low and selling high.
Gee whiz. Is this the same Ben Carlson that is advocating selling equities when the trend line drops below the 200 DMA.

Nah can't be. Maybe one of them must be the Dr. Ben Carson, the HUD secretary. No that guy doesn't give an 'l'. :D
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by willthrill81 »

nisiprius wrote: Tue Apr 10, 2018 4:17 pm Willthrill81, did you elect to take the improvement in the form of "same return, less risk" rather than in the form of "same risk, more return?"
The former, though I don't think that "more return, less risk" is outside the realm of a reasonable possibility.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by FactualFran »

According to the article: "On March 2, the S&P 500 Index closed below its 200-day moving average for the first time in almost two years, and has been bouncing around that level ever since." However, the using data from Yahoo, on March 2 the S&P 500 index closed above its 200-day moving average.

On March 2 the S&P 500 Price Index closed at 2691.25 while the 200 trading day average of the closing values ending on March 2 was 2552.24.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Doc »

FactualFran wrote: Tue Apr 10, 2018 4:51 pm According to the article: "On March 2, the S&P 500 Index closed below its 200-day moving average for the first time in almost two years, and has been bouncing around that level ever since." However, the using data from Yahoo, on March 2 the S&P 500 index closed above its 200-day moving average.

On March 2 the S&P 500 Price Index closed at 2691.25 while the 200 trading day average of the closing values ending on March 2 was 2552.24.
Image

April 2nd ?

Oh, I guess if a guy can predict something a month in advance we should pay attention to him. Not.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by FactualFran »

Doc wrote: Tue Apr 10, 2018 5:07 pm April 2nd ?

Oh, I guess if a guy can predict something a month in advance we should pay attention to him. Not.
Thanks. The article has a publication date of April 10. On April 2 the S&P 500 price index was 0.3% below its 200-day moving average.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by staythecourse »

I'll through out my usual question if using the 200 day MA is so useful then why is it the person who really made it famous Mebane Farmer's own mutual fund using it came and went bust and is no longer in operation?

I always feel like I am the one missing some sentinel article or ground breaking research pub. about active management techniques. I feel like I'm always the one who is clueless and somehow missing the obvious. Guess, that is the allure of active management to make it seem so obvious?

Good luck.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by willthrill81 »

staythecourse wrote: Tue Apr 10, 2018 5:42 pm I'll through out my usual question if using the 200 day MA is so useful then why is it the person who really made it famous Mebane Farmer's own mutual fund using it came and went bust and is no longer in operation?

I always feel like I am the one missing some sentinel article or ground breaking research pub. about active management techniques. I feel like I'm always the one who is clueless and somehow missing the obvious. Guess, that is the allure of active management to make it seem so obvious?

Good luck.
Just look at the data that's been published concerning the use of the 200 DMA. Looking at individuals' performance is not the same as testing the objective performance of the strategy.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by unclescrooge »

staythecourse wrote: Tue Apr 10, 2018 5:42 pm I'll through out my usual question if using the 200 day MA is so useful then why is it the person who really made it famous Mebane Farmer's own mutual fund using it came and went bust and is no longer in operation?

I always feel like I am the one missing some sentinel article or ground breaking research pub. about active management techniques. I feel like I'm always the one who is clueless and somehow missing the obvious. Guess, that is the allure of active management to make it seem so obvious?

Good luck.
Ah, good old GTAA. From 2011 through mid-2016, I think it under performed SP500 by 7500 bps!

I don't think there was a single calendar year where it beat the SP500. Or a total bond fund.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by stlutz »

willthrill--curiosity question: Do you basically switch between 100% equities and 0% equities based on the market trend or are your changes more muted (e.g. switching between 75/25 and 25/75 or something like that)?

From what I've read, trend following strategies actually do backtest fairly well. And they work well in practice and are easy to execute. I think the challenge has always been sticking with the strategy for the long term given that most trades are "losers" relative to buy and hold, but the "wins" are big (missing most of the '08 bear, the '01-'02 decline, '73-'74 etc.)
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by willthrill81 »

stlutz wrote: Tue Apr 10, 2018 11:27 pm willthrill--curiosity question: Do you basically switch between 100% equities and 0% equities based on the market trend or are your changes more muted (e.g. switching between 75/25 and 25/75 or something like that)?

From what I've read, trend following strategies actually do backtest fairly well. And they work well in practice and are easy to execute. I think the challenge has always been sticking with the strategy for the long term given that most trades are "losers" relative to buy and hold, but the "wins" are big (missing most of the '08 bear, the '01-'02 decline, '73-'74 etc.)
I switch completely from equities to bonds, preferably short-term, or SVF when (1) the unemployment rate is above its 12 month average AND (2) equities are trading below their 7 month moving average, based on the last month's closing price. Otherwise, I'm 100% long in equities.

See this blog post for an explanation of this strategy.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by staythecourse »

willthrill81 wrote: Tue Apr 10, 2018 5:52 pm Just look at the data that's been published concerning the use of the 200 DMA. Looking at individuals' performance is not the same as testing the objective performance of the strategy.
I admit I'm not an expert, but if it is such a common and easily executed strategy then why is there no mutual fund that has been successful doing it prospectively going forward? Or am I missing something. Is there are fund or etf 1. Currently using the strategy and 2. Has shown success on a prospective basis?

Thanks in advance.

Good luck.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by willthrill81 »

staythecourse wrote: Tue Apr 10, 2018 11:47 pm
willthrill81 wrote: Tue Apr 10, 2018 5:52 pm Just look at the data that's been published concerning the use of the 200 DMA. Looking at individuals' performance is not the same as testing the objective performance of the strategy.
I admit I'm not an expert, but if it is such a common and easily executed strategy then why is there no mutual fund that has been successful doing it prospectively going forward? Or am I missing something. Is there are fund or etf 1. Currently using the strategy and 2. Has shown success on a prospective basis?

Thanks in advance.

Good luck.
That's a common thought.

The biggest reason is because most investors going the active route aren't very patient, and yet there have been many significant periods where trend following lagged buy-and-hold. The last nine years and counting is a good example of this.

Regarding the poor performance of many who practice market timing, I think that the quote below summarizes the issue very well.
Game.



Everyone agrees that it’s appropriate to divide the space of a portfolio between different asset classes–to put, for example, 60% of a portfolio’s space into equities, and 40% of its space into fixed income. “Market Timing” does the same thing, except with time. It divides the time of a portfolio between different asset classes, in an effort to take advantage of the times in which those asset classes tend to produce the highest returns.

What’s so controversial about the idea of splitting the time of a portfolio between different asset classes, as we might do with a portfolio’s space? Why do the respected experts on investing almost unanimously discourage it?

The reason can’t be transaction costs. Those costs have been whittled down to almost nothing over the years.

The reason can’t be negative tax consequences. An investor can largely avoid those consequences through the use of futures contracts. Suppose, for example, that an investor owns shares of an S&P 500 ETF as a core long-term position in a taxable account, and wants to temporarily go to cash in advance of some expected period of market turbulence. To do that, she need not sell the shares themselves. Instead, she can sell an S&P 500 futures contract in an amount equal to the size of the ETF position. The sale will perfectly offset her exposure to the S&P 500, bringing it down to exactly zero, without triggering a taxable capital gain. When she wants to re-enter the market, she can simply buy back the futures contract, removing the hedge. The only negative tax implication is that during the period in which she holds the hedge, her position will count as a section 1092 “straddle”, and any qualified dividends that she receives will be taxed as ordinary income. But that’s a very small impact, especially if the hedged period is brief.

The reason can’t be poor timing. For if markets are efficient, as opponents of market timing argue, then it shouldn’t possible for an individual to time the market “poorly.” As a rule, any choice of when to exit the market should be just as good as any other. If a person were able to consistently defy that rule, then reliably beating the market would be as simple as building a strategy to do the exact opposite of what that person does.
In my view, the reason that market timing is so heavily discouraged is two-fold:

(1) Market timing requires big choices, and big choices create big stress, especially when so much is at stake. Large amounts of stress usually lead to poor outcomes, not only in investing, but in everything.

(2) The most vocal practitioners of market timing tend to perform poorly as investors.

Looking at (2) specifically, why do the most vocal practitioners of market timing tend to perform poorly as investors? The answer is not that they are poor market timers per se. Rather, the answer is that they tend to always be underinvested. By nature, they’re usually more risk-averse to begin with, which is what sends them down the path of identifying problems in the market and stepping aside. Once they do step aside, they find it difficult to get back in, especially when the market has gone substantially against them. It’s painful to sell something and then buy it back at a higher price, locking in a loss. It’s even more difficult to admit that the loss was the result of one’s being wrong. And so instead of doing that, the practitioners entrench. They come up with reasons to stay on the course they’re on–a course that ends up producing a highly unattractive investment outcome.

To return to our space-time analogy, if an investor were to allocate 5% of the space of her portfolio to equities, and 95% to cash, her long-term performance would end up being awful. The reason would be clear–she isn’t taking risk, and if you don’t take risk, you don’t make money. But notice that we wouldn’t use her underperformance to discredit the concept of “diversification” itself, the idea that dividing the space of a portfolio between different asset classes might improve the quality of returns. We wouldn’t say that people that allocate 60/40 or 80/20 are doing things wrong. They’re fine. The problem is not in the concept of what they’re doing, but in her specific implementation of it.

Well, the same point extends to market timing. If a vocal practitioner of market timing ends up spending 5% of his time in equities, and 95% in cash, because he got out of the market and never managed to get back in, we shouldn’t use his predictably awful performance to discredit the concept of “market timing” itself, the idea that dividing a portfolio’s time between different asset classes might improve returns. We shouldn’t conclude that investors that run market timing strategies that stay invested most of the time are doing things wrong. The problem is not in the concept of what they’re doing, but in his specific implementation of it.
http://www.philosophicaleconomics.com/2 ... ngaverage/
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by snarlyjack »

I read an article (series of articles) where a young
couple was buying like crazy in 2008/2009 during
the firestorm. Instead of "timing" the market they
held their nose & DCA into the firestorm...
(Just the opposite of timing the market).

When it was all said & done they walked out millionaires.

Scary very scary...but super effective. They retired early.

enjoy the article/series...

https://www.millennial-revolution.com/i ... t-2-panic/

A great article from JL Collins. (There's a crash coming...oh and buy).

http://jlcollinsnh.com/2012/04/15/stock ... -save-you/
Last edited by snarlyjack on Wed Apr 11, 2018 8:22 am, edited 1 time in total.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Kaufmanrider »

From the article: "Siegel’s results showed an annualized return of 9.7 percent from 1886-2012 for the timing model versus a 9.4 percent return for a simple buy and hold strategy. Once transaction costs were factored in, the timing model would have dropped to a return of 8.1 percent."
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by onourway »

Given that we know how heavily concentrated stock market gains are in a very small number of very good days, I have to wonder how well this strategy holds up in practice. If you are 100% in cash, you have to buy back in based on the signal described in the blog post. But for any number of reasons it's possible that you may not be able to get fully invested again immediately. So I am curious how this strategy holds up if you miss say 1, 2, or 3 of the best market days in a given decade? Back-testing would tend to gloss over this detail, but in practice I don't see how you can be certain you don't miss out on any of those gains, and I suspect the results are very different when that happens.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by KSActuary »

First, most investors who use this strategy use the 10 month moving average and only check at the end of the month. This chart is published on the Advisor Perspectives web site each month.

Second, would someone accept an 8% versus a 9.5% return if 2008 was a 10% drawdown versus a 45% drawdown? Everyone raise their hands.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by willthrill81 »

onourway wrote: Wed Apr 11, 2018 7:54 am Given that we know how heavily concentrated stock market gains are in a very small number of very good days, I have to wonder how well this strategy holds up in practice. If you are 100% in cash, you have to buy back in based on the signal described in the blog post. But for any number of reasons it's possible that you may not be able to get fully invested again immediately. So I am curious how this strategy holds up if you miss say 1, 2, or 3 of the best market days in a given decade? Back-testing would tend to gloss over this detail, but in practice I don't see how you can be certain you don't miss out on any of those gains, and I suspect the results are very different when that happens.
Keep in mind that the trading days with big stock gains usually occur close in time to the days with big stock losses. And both of these typically occur during bearish markets (i.e. when stocks are trading below the 200 DMA).

Image
https://i1.wp.com/adamhgrimes.com/wp-co ... =373&ssl=1
Note that this chart is almost four years old.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by onourway »

willthrill81 wrote: Wed Apr 11, 2018 9:10 am Keep in mind that the trading days with big stock gains usually occur close in time to the days with big stock losses. And both of these typically occur during bearish markets (i.e. when stocks are trading below the 200 DMA).

Image
https://i1.wp.com/adamhgrimes.com/wp-co ... =373&ssl=1
Note that this chart is almost four years old.
Usually being the key word.

At some point stocks must obviously cross the threshold between trading below and trading above that average. My suspicion is that often it is a single very good day or three in which that threshold is crossed - and it may be crossed by a significant amount. I suspect that the numbers look quite different if one of those days is missed with the investor remaining 100% cash.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by willthrill81 »

onourway wrote: Wed Apr 11, 2018 9:32 am
willthrill81 wrote: Wed Apr 11, 2018 9:10 am Keep in mind that the trading days with big stock gains usually occur close in time to the days with big stock losses. And both of these typically occur during bearish markets (i.e. when stocks are trading below the 200 DMA).

Image
https://i1.wp.com/adamhgrimes.com/wp-co ... =373&ssl=1
Note that this chart is almost four years old.
Usually being the key word.

At some point stocks must obviously cross the threshold between trading below and trading above that average. My suspicion is that often it is a single very good day or three in which that threshold is crossed - and it may be crossed by a significant amount. I suspect that the numbers look quite different if one of those days is missed with the investor remaining 100% cash.
That's been factored into the extensive backtesting that many, including academics, have done.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Doc »

onourway wrote: Wed Apr 11, 2018 9:32 am Usually being the key word.

At some point stocks must obviously cross the threshold between trading below and trading above that average. My suspicion is that often it is a single very good day or three in which that threshold is crossed - and it may be crossed by a significant amount. I suspect that the numbers look quite different if one of those days is missed with the investor remaining 100% cash.
KSActuary wrote: Wed Apr 11, 2018 9:04 am First, most investors who use this strategy use the 10 month moving average and only check at the end of the month. This chart is published on the Advisor Perspectives web site each month.
From an email I can get from any of our brokers:

"XYZ crossed below its 100 day moving average at $36.82. The last sale was $36.79 , down 0.40% on the day."

This one arrived a 9:45 AM E this morning. I don't think it's the end of the month even in the midwest.

I can these alerts up for any listed security and pick the DMA range from several options. The only hang up is that I only get one alert per security in any given day for some brokers. (It may be the combination of security and DMA choice that makes the one per day criteria.)

As I said previously I use these alerts to decide if it is a buy situation based on rebalancing to my AA not as a sell situation. But if you want to do this kind of trading there are tools available to help you out at any time during any trading day. (You might even be able to get an alert on futures.)
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by snarlyjack »

I'll Raise My Hand...

I can absolutely guarantee you that if the market broke
down to 2008/2009/2010/2011/2012/2013/2014/2015 yearly levels
that Warren Buffett & me would be investing with everything we have.
(You should read the Snowball by Warren Buffett).

In my particular fund (VHDYX) Vanguard High Dividend Yield Index Fund
I would LOVE to see the yield at 5/6/7%. I would buy as much as I possibly could
& sit on it. I would sit on it for the next 50 years & smile to myself every single day.

Yes, timing the market is 1 way. But, their are other ways that are just as effective.
Also, what your not taking into consideration is long/short term capital gains taxes.
Everyone gives me a hard time for being in dividend paying funds because of the
low cost qualified dividend taxes. Just imagine what the capital gain tax would be.

My strategy is to buy & hold forever. If I see a huge dip in the market my first
thought is what a wonderful buying opportunity...
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by onourway »

Doc wrote: Wed Apr 11, 2018 10:06 am From an email I can get from any of our brokers:

"XYZ crossed below its 100 day moving average at $36.82. The last sale was $36.79 , down 0.40% on the day."

This one arrived a 9:45 AM E this morning. I don't think it's the end of the month even in the midwest.

I can these alerts up for any listed security and pick the DMA range from several options. The only hang up is that I only get one alert per security in any given day for some brokers. (It may be the combination of security and DMA choice that makes the one per day criteria.)

As I said previously I use these alerts to decide if it is a buy situation based on rebalancing to my AA not as a sell situation. But if you want to do this kind of trading there are tools available to help you out at any time during any trading day. (You might even be able to get an alert on futures.)
I certainly understand you can get these kind of alerts, but there can be all sorts of reasons why one would miss out over decades of time - from life events, to simple mistakes in executing ones strategy, to technical issues making it impossible to place an order, and so on.

If this model's advantage is slim enough that trading costs can be a factor in its success, I just don't see how the risk of missing out while in cash isn't an even bigger risk - especially when it's acknowledged that there will be many false sell signals with this model.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by LRonHalfelven »

(2) The most vocal practitioners of market timing tend to perform poorly as investors.
"That's nit-picking, innit?" -- Nigel Tufnel
"If you change your strategy frequently you don't really have one." --Garry Kasparov
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by willthrill81 »

LRonHalfelven wrote: Wed Apr 11, 2018 10:42 am
(2) The most vocal practitioners of market timing tend to perform poorly as investors.
"That's nit-picking, innit?" -- Nigel Tufnel
Correlation does not equal causation. Being in the NBA does not make one taller than average.

Trend followers, almost by definition, tend to be more concerned about downside risk than buy-and-holders. Consequently, they often spend too much time out of the market.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by snarlyjack »

Here is what my favorite investor has to say about the USA.
Take it away Warren Buffett...

Enjoy... Do you really want to be out of the market?...

https://www.bing.com/videos/search?q=wa ... &FORM=VIRE
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Rowan Oak »

snarlyjack wrote: Wed Apr 11, 2018 6:53 am I read an article (series of articles) where a young
couple was buying like crazy in 2008/2009 during
the firestorm. Instead of "timing" the market they
held their nose & DCA into the firestorm...
(Just the opposite of timing the market).

When it was all said & done they walked out millionaires.

Scary very scary...but super effective. They retired early.

enjoy the article/series...

https://www.millennial-revolution.com/i ... t-2-panic/

A great article from JL Collins. (There's a crash coming...oh and buy).

http://jlcollinsnh.com/2012/04/15/stock ... -save-you/
Agree great article by Jim Collins. He is the epitome of buy and hold. The entire Stock Series is very good.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by tman9999 »

Curious what B-Banders are thinking about the latest market gyrations. I'm just starting to learn about how to use the 200 dma approach, and am thinking right now is either the exact right time to try it; or the exact worst time to try it. Thoughts?? (Sitting about 55/45 including dry powder, with 60/40 target).
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Forester »

tman9999 wrote: Mon Mar 09, 2020 10:07 am Curious what B-Banders are thinking about the latest market gyrations. I'm just starting to learn about how to use the 200 dma approach, and am thinking right now is either the exact right time to try it; or the exact worst time to try it. Thoughts?? (Sitting about 55/45 including dry powder, with 60/40 target).
You should only do it with a written plan and run equity trend alongside buy&hold stocks, bonds. Half of my trend signals triggered at the end of last month leaving me 50% stocks & 50% bonds/gold.

Be aware that some signals are still long stocks; you should probably simply buy the $ROMO ETF and let other people calculate the moving averages. Put 20% or so into ROMO and leave the rest of your portfolio buy&hold.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by squirm »

Some will use the direction of the 200dma.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Target2019 »

Add something like 3.5 to 5.0 moving average envelope to 200dma. That helps eliminate whip sawing. Do I use it? No.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by ukbogler »

This guy says you absolutely should use it Or '12 month SMA'. Or any SMA, in fact. But then he's barking mad, and is trying to sell you his leveraged trading systems so you can go barking mad too.

https://michaelritger.com
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by rich126 »

snarlyjack wrote: Wed Apr 11, 2018 10:14 am I'll Raise My Hand...

I can absolutely guarantee you that if the market broke
down to 2008/2009/2010/2011/2012/2013/2014/2015 yearly levels
that Warren Buffett & me would be investing with everything we have.
(You should read the Snowball by Warren Buffett).

In my particular fund (VHDYX) Vanguard High Dividend Yield Index Fund
I would LOVE to see the yield at 5/6/7%. I would buy as much as I possibly could
& sit on it. I would sit on it for the next 50 years & smile to myself every single day.

Yes, timing the market is 1 way. But, their are other ways that are just as effective.
Also, what your not taking into consideration is long/short term capital gains taxes.
Everyone gives me a hard time for being in dividend paying funds because of the
low cost qualified dividend taxes. Just imagine what the capital gain tax would be.

My strategy is to buy & hold forever. If I see a huge dip in the market my first
thought is what a wonderful buying opportunity...
Wells Fargo has a preferred stock (WFC-L) that was originally issued by Wachovia at $1000 and a 7.5% dividend. It is currently trading around $1500 (5% dividend) and is nearly uncallable (do your own research) and unless you expect interest rates to rise quickly or Wells going bankrupt it is worth investigating. I bought some in 2008/9 when it was trading well under par ($1000) and picked up some a while ago when it dropped backed to $1200.

I kind of wish I would have bought more when it was under $1000.
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by willthrill81 »

I wonder if the naysayers to the 200 DMA strategy are still as skeptical as ever.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Mactheriverrat »

willthrill81 wrote: Wed Mar 18, 2020 2:33 pm I wonder if the naysayers to the 200 DMA strategy are still as skeptical as ever.
Could it be a lot are don't believe technical indicators or have never been introduced to them.

Hmmmm!
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Re: "Don't Use the 200-Day Moving Average as a Sell Signal" - Ben Carlson

Post by Forester »

willthrill81 wrote: Wed Mar 18, 2020 2:33 pm I wonder if the naysayers to the 200 DMA strategy are still as skeptical as ever.
It's a difficult one. Timing is mentally hard and the public tactical funds are a mixed bag, invariably expensive too. Stocks & bonds definitely work. And how much does one allocate to trend if at all? 50% would represent big potential for tracking error. I suggest 10% to 30% is conservative & worthwhile.

Trend is the only way to turn valuations on their head. If an investor is buy&hold stocks bonds, they will succeed, yet they are a prisoner to valuation, a question of arithmetic. If returns are pulled forward then fallow years must follow.

Everything is in a state of flux... the 200 DMA / Meb Faber 10 month MA are possibly re-establishing an impressive track record, but that won't be known for a while yet. OTOH the Antonacci GEM model could lock in a 30% to 40% drawdown by the time it dumps US stocks at month end - nasty.
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