The "Death Cross" post also reminded me of something I'm seeing more and more of in financial journalism, an almost jaded bemusement. It's as if the scribes who were reporting through the recent unpleasantness have aged before their time, have seen too much hokum and heard too much B.S. to take anything that practitioners say or do too seriously.
Or maybe I'm just projecting after listening to Green Day's "Jaded" on the way in.
Either way I think I'll check out some of the old-timers to see if they ended up with the same phlegmatic weltanschauung.
From System Trader Success:
The Golden Cross typically referrers to the crossing of the 50 and 200 Day Simple Moving Averages. When the shorter term average moves above the longer term average this is seen by many as the beginning of a sustained bullish period and vise versa. It is not wise however to risk your money in the market on the assumption that such a theory is true.
One has to ask, which is better, a SMA Golden Cross or an EMA Golden Cross? Are the settings of 50 & 200 really the best? What is the profile of the trades that this strategy generates as far as duration, probability of profit, draw downs etc. In order to answer these questions we applied some brute mathematical force and tested 1750 different combinations through 300 years of data across 16 different global markets~. We have done the hard work and you get the benefits for free… aren’t you lucky.
Michael Stokes over at MarketSci has also written a great series on Trading The Golden Cross.
Download A FREE Spreadsheet With Data, Charts
And Results For all 1750 Moving Average Crossovers Tested
Our Testing Strategy Explained
There are endless combinations of moving averages that we could test in search of the best. To cast our testing range wide but intelligently we have used progressions of a ratio; slow/fast MA:
Fast Moving Averages (FC) = 5, 10, 15, 20, 25, 30, 35, 40, 45, 50
Slow Moving Averages (SC) = 1.2 * FC, 1.4 * FC, 1.6 * FC, …….. 5.6 * FC, 5.8 * FC, 6 * FC
So each of the ten FC settings were tested against twenty five SC settings based on a multiple of the FC. e.g The traditional Golden Cross with a SC of 50 and a FC of 200 has a multiple of 4 (because 50 * 4 = 200). The tests against a FC of 50 had a multiple as low as 1.2… (50 * 1.2 = 60) and as high as 6… (50 * 6 = 300).
Hopefully by using this tactic we can identify the multiples or ratios that deserve more targeted testing.
Simple vs Exponential Moving Average Crossover
In our original MA test; Moving Averages – Simple vs. Exponential we revealed that theExponential Moving Average (EMA) was superior to the Simple Moving Average (SMA). If the same proves to be true with the ‘Golden Moving Average Crossover’ then this will further validate the EMA as being of higher-caliber than the SMA.
The chart above fades between the results from the EMA and the SMA crossover tests. As you can see the EMA outperforms the SMA by well over a percentage point on average. This unequivocally confirms that the EMA is superior to the SMA. Furthermore, it should be noted that every single EMA combination tested (and most SMAs) outperformed the buy and hold annualized return of 6.32%^ during the test period (before allowing for transaction costs and slippage). But “technical analysis doesn’t work” they say....MUCH MOREAlthough older the above referenced MarketSci post "Roundup: Trading the Golden Cross" is worth a look for Golden, Death, uptrending etc. crosses.
