Trend-Following Indicator Back-Tests

Have a look at my research on trend-following indicators in which I systematically analyzed 10 ways to ride the trend in US stocks. The back-testing was done with Wealth-Lab Pro(R) for Fidelity Investments. The stocks considered were the S&P500 components. The 10 indicators tested were:

  • Average Directional Movement Index (ADX)
  • Commodity Channel Index (CCI)
  • Channel Break-Outs (NH/NL)
  • Moving Averages (MA)
  • Moving Average Crossover (MAXO)
  • Moving Average Convergence Divergence (MACD)
  • Momentum (Mo)
  • Rate of Change (RoC)
  • Linear Regression
  • Chaiken Money Flow (CMF)

Check it out – the data may surprise you!
https://www.fidelity.com/learning-center/technical-analysis/how-to-befriend-the-trend

On Knowing When To Sell

SPY Sell and Hold Signals

I want to share a couple key ideas with you.  I just answered all the write-in survey questions from the recent MoneyShow and if there was one theme, it was “how to know when to sell?”

The truth is that there is no one-size-fits all answer to that question because it depends on your goals and outlook. 

This particular moment in the market illustrates that really well.  (See chart above)  Short-term strategies such as price crossing the 20-day moving average and even intermediate-term strategies such as MACD Divergence have long since given a “sell” signal. The aggressive traders among us – myself included — have sold short and are now watchful of an opportunity to cover.

 I also follow a longer-term long-only strategy for my retirement funds.  The SPY below its 200-day MA tells me not to buy.  But is it a sell signal?  No, according to the 50/200 MA pair because the 50 MA has not crossed down through the 200 MA to give the Death Cross signal.    

 How will it play out this time?  I don’t know.  What I do know is how the strategies mentioned above have performed over the last fourteen years.  That data helped me to make the decisions about which signals to follow and with what capital.

 This brings me to the other frequently-asked question at the show:  “What is BackTesting Report?”

 BackTesting Report started as a series of e-books about the historical performance of various technical indicators and trading strategies.  I began the work because I wanted to know – for my own trading – what I might get out of these strategies, and which I might use for buy/sell decisions.

 BackTesting Report has expanded beyond the reports to videos but the concept is still the same:  to provide the data  to understand the trade-offs between the various technical strategies and pick the best strategy.

What about you?  How do you know when to sell?