I’ve covered this before, like here, but inevitably, whenever there is an impending moving average cross, I see mention of it throughout the blogosphere. So let’s run the numbers, again…
Actually, not too long after Chess starting blogging for iBC, he mentioned the cross as a bearish setup. As I am driven to correct untruths as soon as they are muttered on the internets, I went over to Chess’s blog, intent on setting the record straight. Of course, that event was the exception to the rule, and Chess was right. (Here is the offending post.) It was a good time to get short. Generally speaking though, a 20 day moving average cross beneath the 50 day moving average has been at best a neutral setup and often a better bullish setup than a bearish one.
Rules:
- Buy the close when the MA20 has crossed beneath the MA50
- Sell X days later
- No commissions or slippage added
- All available ETF history used
Results:
Takeaway:
IWM looks like a great trading vehicle for those who like to trade the indices. Look at that volatility!
Overall, nothing much to get excited about for either the bulls or the bears.
Haha I remember that. Here is the link http://ibankcoin.com/chessnwine/2010/05/17/bottom-callers-anonymous/
lol…good times my friend. I updated the post with the URL from the offending post 😉
Interesting but I think it would be interesting to see whether the 50 was downtrending or not, I would expect when it’s still climbing and the 20 crosses below it creates a good buy signal, but if it’s falling and the 20 crosses below it has a higher probability of confirming a longer-term downtrend.
JB, see the link provided in the first line of the post. It incorporates the 50 MA.
However, how does one determine whether or not the 50 is downtrending? It is kind of hard to quantify objectively. I am open to suggestions though!
I would maybe start with some simple qualifier like ‘when the 20 crosses below the 50 AND the 50 is lower than 10 bars ago’, i’m sure you could experiment. I would expect in those instances it would more likely result in a successful sell signal, ie, the market would presumably already be downtrending and the 20 crossing below would suggest a short-term acceleration of that. Bottom line, the 20 crossing the 50 part is fairly moot, it’s what the 50 is doing when the 20 crosses. Just what I believe.
You might be right. I can say with certainty that most MA crosses should be faded. I might run the test tonight for fun.
Building on JB’s comment, running three tests on what the 50 is doing during the cross may be more accurate…i.e one test with a positive sloping 50, neutral slope 50, and then negative sloping 50. It would be interesting to see the results.