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|Subject: Re: S&P & SMA||Date: 5/4/2013 7:34 PM|
|Author: Rayvt||Number: 72194 of 75794|
Perhaps I don't understand the strategy, I count 3 dips of the S&P below the 200 day SMA in the last 2 years alone.
First off, I don't use 200-day SMA. I use 43 weeks or 10 months. I evaluate only weekly, not daily. For monthly, I do it on the last Friday of the month, not the last calendar day.
And I use hystersis. Normally, my sell signal is a close 3% below the 43-week SMA. If you use 0%, then you get a flurry of signals right around the crossover point.
Here's the counts I get, 1/1/50 to 3/15/13 (all round-trip trades):
daily, +0% & -0% (buy & sell): 177
weekly, +0 & -0: 95
weekly, +0% & -3%: 39
monthly, 0/0 and 0/-3: 47 & 45
Why can't I back test it? The logic is simple to implement using historical data. In fact I did back test it and it did improve returns over a straight 60/40 balanced portfolio.
Maybe you can backtest it. I looked at your criteria and thought it had too many subjective pieces. The market does what the market does, and whether or not you've bought or sold anything in the last 3 months doesn't enter into the picture.
I just has the feel of what I was attempting to do many years ago. I eventually discarded it because it was just too subjective. I generally try to write down the concrete steps of any method I'm considering, as if I was going to write a program to implement it.
That's a great way to find out if there are any holes or handwaving that you didn't spot at first. Often a narrative description seems clear, but then you write it out and discover that there are either hidden assumptions or something missing, or something that can't actually be done.
Some questions that came to mind: What if the US is at a 52-week high but Asia isn't? What if Asia then hits a high but US has dropped below the high? If you insist that all 3 must hit a high (or low) simultaneously, you might *never* get a signal. So you have to shade it, and say to yourself, "Well, US is at a high and Asia was at a high just a few weeks ago and it looks like Europe is going to hit a high any day now, so I'll call a signal." So instead of a bright-line rule, you are back to just deciding by your gut feel.
I know that many people like to shade their allocation as you mentioned, by slowly shifting to higher (or lower) bond allocations. That's always struck me as being too hesitant, and lacking conviction. Works for some people, but I'm not of that mind.
I've been playing around with investigating various timing signals & methodologies for several years now. After awhile it came clear that it was an "indifference of the indicators" type of thing. What you are trying to determine is if the market is going up or going down. Or going sideways -- but if it's going sideways (that is, nowhere) then it doesn't matter if you are in or out. All those fancy methods were just different ways to measure if the market was going up or down. So it didn't matter which method you used, because they all said essentially the same thing. What I usually see when looking at different signals is that the timing differs by a week or two between one signal and another. The difference in overall performance is just the luck of the draw of happening to catch (or miss) a particularly good/bad week right at the transition point.
"I don't really think it matters which trigger is used as no single trigger can be the best for all times but they can be effective which is the priority as I see it. Here effective is simply defined as avoiding the full brunt of a large decline. Aside from my belief in its effectiveness, the 200 DMA is simple to explain and understand.
No one rule is always correct. they all give false signals."
Simple is better, because simple is more robust.
FWIW, Faber claimed that the market was more volatile when it was under the 200dSMA, and that most of the best & worst days happened then as well. Early on I backtested that, and confirmed that it was indeed the case -- so I don't bother to look at it anymore.
And since the most important thing is to avoid large drawdowns, I don't particularly care to try to fine-tune the signals. My stats show for SPX that with the 43-week SMA +0%/-3% trigger:
Avg buy was 7% above the bottom.
Avg sell was 7% below the top.
And that's good enough for me.
'course, I don't use any of this to invest in the S&P500. I use other screens & strategies, and just use the SMA signals to decide when to move to cash.
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