Soon we’ll have a Golden Cross on the S&P500.
I have written about this numerous times, but it is always fun to revisit.
Setup:
- Buy the SPY at the close when the 50 day simple moving average crosses above the 200 day simple moving average.
- Sell the open SPY position at the close when the 50 day simple moving average cross beneath the 200 day simple moving average.
No commissions or slippage were used in the test.
Results:
I find it interesting that the last exit from the Golden Cross was pretty horrible. I’ve included a chart below of the entry and exit. Note that the exit was almost at the exact low of 2010.
All in all, this setup remains appealing and will likely continue to maintain a prominent position in trend-following lore.
I’m enjoying these posts Wood.
Was thinking about changing the variables to:
Buy Signal: Same
Sell Signal: Slope of 50-day: 0 Slope of 200-day: positive
Not a bad idea.
I would probably try something like the current 50 day is lower than the 50 day X days ago… It would be easy to optimize for X, but curve fitting would be a concern.
In all fairness to the horrible exit, the S&P is after all an Index. And the average return is pretty solid just for an index.
Agreud, Redshark. I didn’t mean to imply anything about the recent exit other than to marvel at how close the death cross was to marking the actual low of the recent cycle.
Oh, and to suggest that a better exit methodology may exist…
I agree that a better exit methodology probably exist, but I still feel like it is important to use the exit to define the trend. So maybe, exit is not the best word.
As for my initial comment, I do not know. I feel like Indexes, for the most part, probably have “Bad” exits in general compared stocks. I am with you about it looking bad, but I guess you take what you can get.
Cheers.
I dunno, man… Those are some seriously long hold-times. I dun think i could trust a moving avg xover with these characteristics and the stats derived from such a limited number of data points.
We could go much further back using the SPX. Since it is not tradeable, I don’t often test using it, unless someone just wants to go back much further 😉
If we go back to 1930 on the SPX, we have 46 data points.
I think I have a link up somewhere, looking under “categories” –> “golden cross” and you may find more testing.
You can always check out MarketSci’s posts on it too. Good stuff there!
I wonder how it would look if you exit occurs when the Highest High For the past X periods was less than the Highest High Since the Golden Cross. In other words, when stock price discontinues making new highs, sell. Of course, optimizing for X will lead to curve fitting, but the general idea is more in the right direction as to a more efficient exit.
Red, I like that idea.
I messed around last night with an exit that sells if the 50dma is lower than X days ago. I couldn’t find much improvement, even optimizing.
How about a go long/go short version? Instead of just selling, go also short when the 50 crosses below the 200, then cover and go long when the 50 crosses the 200.
I tried this on the Russell 2000. 74.2% from the sell on 12/13/88 to the sell on 10/8/08. B&H was 281.76% in that time frame. It bought at 723.68 on 9/18/08 and sold at 546.57 on 10/8/08. ouch.
I’m not sure I understand. Are you talking about shorting on the death cross?
no – going long on a golden cross, and selling on the death cross. doing it as if you are buying the Russell, which you can now do with IWM. I buy on the day of the cross at close because you can figure out in advance if the cross is going to occur at close.
Yeah, that was a bad trade for the $RUT on 9/18/08. The question I ask is how often will a sept, oct. nov. 2008 happen? While I’m not a big market bull, I also do not think we will have another Armageddon like those months, for many years to come.