Over at ETF Prophet, Dave has published an interesting study which was in part spurred by my recent post, New 200 Day Lows Make for an Ugly, Volatile Future.
I’m going to re-publish the basics of the study here. Be sure to click-through to his site in order to see the results and the nice chart porn.
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I found a recent post by Woodshedder on the behaviour of markets after 200 day highs and 200 day low absolutely fascinating. Well worth a read.
I was interested in this conclusion:
“The market making new 200 day highs is carried by its own momentum. The momentum allows the market to shrug off bad data and investor fear and uncertainty.”
It got me thinking…could this provide some sort of long term trend filter?
It seems so.
The Study:
Buy & Hold (no divided adjusted data or return on cash)
Buy only if it has been less than 101 days since a 200 day high.
Buy only if it has been over 100 days since a 200 Iday high.I applied this to different markets over various time frames as follows:
To see Dave’s results and read the rest of his post, go here: Days Since 200-day Highs.
What I like about both of these studies is that they complement each other’s results and the differences within both are clear and wide. As you stated volatility is the word and just looking at the daily SPY, the gaps and ranges confirm that.
Redman, if I could teach new traders or newish investors one thing, it would be to know when volatility will be high, what it will be like watching your account during high volatility, and how to trade it.
Well put, I placed my first trade in July 07 and blew thru 2 accounts with all the turmoil during that time through most of 09 so just under 2yrs (thru correction & the rally) of beating myself up. I learned I was trying to do too much with too little and taking big risks. Built my current account up and got more organized, and most importantly learned how to assess portfolio risk during times of volatility. Example today, lightened up positions and went kayaking…good stuff.