I'm busily wondering tonight about the success of various market timing systems. As a newbie, I hear things like "the Dow has fallen below its 21-day moving average, so it might be time to get out of the market" and I check it on the charts and sure enough, it looks like there will be more of a drop in the DOW. But when I put such a simple system to the test, getting in and out of the market based on the 21-day MA, I get returns since the beginning of 1988 to the present of minus 2 percent a year. With a 9-day MA, I'd get minus 10 percent a year. These are based on a system of buying when they cross up over the MA and selling when they cross back down. With the 50 MA, I do better: plus 8 percent a year.
Richard suggested looking at MACD(13,34,89) and Dahl's Primary Trend. You do better with this system. If you use the trigger line as the threshold for MACD and 0 for Dahl, you get about 12% a year. If you simply use 0 as the threshold for MACD, you get about 13% a year.
I realize that experienced technical analysts are using a lot more than these simple systems to gauge the overall market, but I can't imagine that it's easy deciding when to get in and when out. It might be wise to take some money out now, given what's happening with the moving averages, but then you have to decide when to get back in. And so on with every move up and down.
If you bought and held for the same period, you'd get about 30% a year with the Dow. Maybe my husband, "Buy-and-Hold Bill," has a point. I don't know.
(Incidentally, with the Rainbow System, you wouldn't reach the pot of gold, but you'd get about 10% a year. You wouldn't become wealthy quickly, but you'd enrich your broker with all the trades.) |
