Dr. Data (Michael Rechenthin, Ph.D.) backtests a moving average signal strategy to determine if it beats a simple buy and hold strategy. Classic bar charting patterns, such as a triangle, wedge, flag etc., are subjective. Moving average crossing signals are clear which is why they were chosen for testing.
A graph of KO was displayed which showed when a short term moving average crossed above (bullish signal) and below (bearish signal) a longer term average. Another graph used the S&P 500 as an example when the 15-day moving average crosses the 50-day (bullish signal) moving average and when the 50-day crosses the 15-day (bearish signal) moving average. The study’s goal is to see if this strategy can beat buy and hold.
Bullish and bearish moving average strategies (using different combinations of short- and long-term moving averages) were compared to a buy-and-hold strategy using the S&P 500 from 1950 to the present.
A table was displayed using the four different signaling strategies, the 15/50 MA, 13/34 MA, 10/50 MA and 5/20 MA. The table showed the results of the Profit/Loss from the bullish signals, the percentage of profitable bullish signals, the Profit/Loss from the bearish signals and the percentage of profitable bearish signals. A note on the bottom provides the result from a buy and hold strategy.
Another study was performed testing a moving average cross signal strategy on each stock in the S&P 500 over the last 30 years.
A table was displayed with the P/L, P/L per day, Percentage of Profitable Trades and Days in the Trade. The table showed the results of Bullish signals (10/50 MA crossover), Bearish signals (50/10 MA crossover) and Buy and Hold. The study also tested 15/50, 13/34, 5/20 and 50/200 signals which were discussed but not displayed on a slide.
Watch this segment of "The Skinny On Options Data Science" with Tom Sosnoff, Tony Battista and Dr. Data for the results of the studies and to learn if this form of technical analysis outperforms a buy and hold strategy or not.
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